Push defaulting cos to change mgmt, govt tells banks

Banks should push for a management change in companies defaulting wilfully, Financial Services Secretary Rajiv Takru said on Tuesday. While banks couldn't deprive owners of shareholding, they could insist on the management taking a backseat and allowing another entity to manage the affairs professionally, he added.

"The state of non-performing assets and restructured loans has worried me from day one. Unfortunately, I get a feeling there are some who see distressed conditions as an opportunity (to avoid repaying loans)," Takru said, addressing a conference organised by the Indian Banks' Association and the Federation of Indian Chambers of Commerce and Industry.

Expressing displeasure at the way banks dealt with defaulting companies, Takru said the system had been too tolerant in such cases. "People taking loans must understand they have to repay the money. When they (companies) are in distress due to bad management, the expectation that banks would pick up the tab is uncalled for," he said.

He added there were cases in which companies were facing problems due to the global slowdown, as well as hurdles in securing fuel (gas and coal). These, he said, were understandable cases, and banks were hand-holding such companies. He added he had come across instances in which managements were involved in the diversion of funds.

On the poor performance of many public sector banks in the quarter ended June, Takru said things weren't right and hinted at dismal results for the quarter ending September, too. "It does not take an astrologer to predict how these (results) would be. Banks need to take a medium- and long-term view and worry about the third and fourth quarter," he added.

On financial inclusion, Takru said banks had to open more branches, use the services of business correspondents and install many automated teller machines.