“50% of NPAs in the Indian Banking System can be classified as Wilful Defaults” – Panel Discussion during JAAF at MISB Bocconi

MISB Bocconi hosted the Journal of Accounting, Auditing & Finance this year from January 8th to 10th 2015 in Mumbai. It was co-orgainzed by SDA Bocconi, School of Management and the Indian School of Business. The event was sponsored by Pwc.The conference hosted some brilliant minds from across the world. The first day saw stalwarts like Prof.Kashi Balachandran (NYU Stern), Prof. Joshua Ronen (NYU Stern) and Prof. Andrea Dossi (SDA Bocconi). However, our focus will be on the interesting panel discussion on Day 2 on – “Transparency in Corporate India : How do governance issues matter for restarting economic growth”

The discussion was moderated by Amir Ullah Khan – Director of Research, AEQUITAS and Policy Advisor, GATES Foundation. The panel consisted of Rajat Khaturia – Director and CEO of ICRIER, Kishore Soni – CA and Chairman, SIRCON, Ashish Gupta – Deputy Editor, Fortune India and Soumya Sarkar – National Editor, Mint

It was a very engaging panel discussion on various issues around Corporate Governance, PSU Banks, Land Acquisition, Monopolistic practices and Competition in India, Bankruptcy reforms etc. Kishore Soni made an interesting presentation on Bankruptcy reforms and the history of their evolution in India. One basic insight was that even after reforming law is passed by legislators, it is the bureaucrats who put a brake on its implementation. He presented a case study of a newspaper company which registered with the BIFR in September 2013 and how that case leaves a lot to be desired. There are an estimated 6 Billion Dollars which are stuck as bad loans in the system.The moderator Mr.Khan asked Ashish why in India we need to pay 50% of the cost of buying a house in cash. While Ashish said that it was because of the stamp duty, Soumya Sarkar’s view was that it wasn’t only because of stamp duty. He said that there are many countries with much higher stamp duty rates and yet they have zero black money house purchases. He said the fact that there was so much black money in the system that it needed avenues to be used. Real estate purchases are one of the easiest ways to channel that. One of the audience members asked Kishore Soni whether the wilful defaulter labelling will help PSU banks recover money to which Kishore expressed ‘No hope’. He said that banks were very wary of labelling defaulters as wilful and even when they did promoters could easily acquire a court order against it. He said if applied strictly over 50% of the NPAs could be classified as wilful defaults.On a one-on-one interaction later he said that the small business owner always suffers – when he/she tries to raise capital or when his/her business goes sick. He said only a top level political intervention can change the course of things. He said the latest statements by the government on autonomy to PSU banks are good statements of intent but we need to see 6-12 months later whether it has been put into practice.

One an one-on-one interaction with Amir Ullah Khan, he mentioned that small companies have been starved of capital. He believes that there is tremendous value in funding small enterprises in India in the range of $50,000 to $100,000 but they aren’t getting it because big companies with political connections would be sitting on that debt. However, the bright spot is that a lot of PE firms have identified the potential in India’s small businesses and we should see more activity. He believes even some private sector banks may help small entrepreneurs in Health, Agriculture and Education.

Ashish Gupta mentioned during the discussion that the biggest issue on which ‘Make in India’ or ‘Make for India’ depends is reforms around land acquisition and reforms around that. One of the anecdotes mentioned was on how farmers also try to game the system to their own benefit. One big project in Orissa which was supposed to begin in 2007 is still trying to acquire land. Many farmers who realize that a company needs contiguous land figure that they can extract more once the other farmers have already given their land. They block the process knowing that 80% of the farmers need to agree. So there are a lot of challenges which need to be battled. On the question of competition and monopolies, he mentioned that Telecom is one example which has grown in India because of market pricing. There are almost 10 competitors in a market like Mumbai which is unheard of in most markets in the world. The pricing in India is among the lowest across the world irrespective of whether you look at straight exchange rate conversions or through purchasing power parity. And that has been possible because of competition. Soumya said that the old Monopolies and Trade Practices Commission was largely ineffective because it did not have enough teeth and in cases where fines were imposed they weren’t big enough. The new replaced Competition Commission of India has more powers but faces many challenges in operating independently.

During a one-on-one with Soumya Sarkar from Mint we asked him on the challenges to be objective and unbiased in the media when reporting on finance and business matters especially in an era where big businesses have interest in media and the continued role of advertising revenue in keeping media enterprises afloat. We also asked him if the reader will get unbiased views at all with everyone perceived to be aligned with some business or political interest. Soumya’s view was that the reader is very intelligent. The reader can easily make out if a media house is consistently following an agenda. One way to counter the ‘bias’ perception is to help give a platform to all kinds of views.

During the day, research scholars from various top universities in India and across the globe kept presenting their papers which were well-discussed and critiqued by experts at the conference. To read the papers presented at the conference, you can click here

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