Stressed
accounts who have defaulted are given almost same treatment irrespective of the
issues involved. It is just like giving electric shock of same volts and
frequency to every patient visiting mental hospital without judging the level
of disease , intensity and age. Here is how they are treated and the effect
thereof:
1. Stage I -Lenders: Flooding of notices related
to irregularity, warnings, threatening.
The moment panic button of stress is pressed lenders run for recovering
their money forgetting that they are major financial partners. To prove their
capability, lenders flood the borrower lot many letters, notices, warnings etc.
Instead they should try to find the reason behind this.
Effect of the Action: The borrower first tries to convince the lenders
humbly. Then becomes defensive and in final stage after convincing self that
now he may be thrown out of the business, and loose every penny , starts
avoiding the lenders. Lenders start calling them so often that the borrower
gets scared and resorts to avoid.
2. Stage II-Lenders : Further pressurize
the borrower by giving warnings, threatening and levying penalties, higher rate
of interests and non cooperation with the borrower. Lenders Never discuss why it happened, only concern
is pay money even if you lost every thing. They never show any interest in
knowing the facts.
Effect of Action: The borrower starts hiding
the facts as he feels , lenders are not interested in helping to revive but only in their money.
He starts avoiding the lenders, and simultaneously try to safeguard his own
interest. Thus the unit becomes orphan and gradually moved towards sinking.
3. Legal Actions by Lenders: Still lenders feel that their actions of recovery were right. They
further burden him with legal notices. Here, the lenders feels that if they
threaten the borrower with stringent actions, money will come. They forget,
this theory is suicidal and will result in huge losses but the lenders in the
race of proving themselves honest and shrewd (which is very rare) they virtually
kill all the hopes of revival.
Effect of Action: Gradually the issue between lender and borrower turns into lawyer
and lawyer. Result can be immediately expected as two lawyers are more
interested in winning the fight not in win-win situation.
4. Settlement, write-off and
provisioning by Lenders: Lenders by this
time believe that the borrower is cheater, mafia, dishonest, criminal, non
professional and so on. He has siphoned off money and now enjoying life . Also
that their seniors or predecessor were not
capable enough and they did mistake. So the lending institution has to suffer
the loss. They have tried their best and nothing can be done.
Effect of Action: Borrower and Lenders
settle the account on the basis of the security available as the business by
now is dead. In most cases Lenders loose money.
5. Conclusion: Finally the fight between
layers does not lead anywhere and behind the curtain, negotiation starts to
settle the dues and disputes. No body wins and poor stake holders loose
heavily.
In my view this set trend of handling the
account is absolutely ridiculous as it does not help any one. Lenders and
borrowers behave differently depending
on the loan amount, security pledged and
mistakes done in handling the accounts. An urgent attention is required to look into the
strategy and methods of handling the defaulting /stressed accounts,
particularly at the initial stage. The action should be to help in bringing
back the stressed accounts to normal and revive instead of just killing to
recover the money.
On one side the borrower is in problem . The strategy of pushing the borrower
to corner with sole objective of recovery is not only dangerous but pathetic
too. How can an unit where the major financing partner is the bank suddenly
become untouchable. Sometime we feel pity of such policy. Pushing, punishing,
criticising , reprimanding the borrower is in no case going to serve the
purpose. This strategy is no where can be termed as intelligent. Do we punish
our body when it is getting in stress? Do we punish our kids when they do not
perform as per our wish or they fail in something? Even in private sector
whenever some borrower gets into stress the lender tries to save him so the
money can be recovered.
Current situation of NPA in banks in our country
is mainly due to this reason where no
Banker could think other way of handling the stressed accounts. Mistrust
between the lender and borrower causes the maximum loss and that too to the
lender. By punishing the borrower
or trying to Finnish him or throwing in dust may give some satisfaction of
revenge but not money.
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