Letters: Lending problem

This refers to S Murlidharan's article "Why banks and FIs are not using the brahmastra" There are many reasons for poor project appraisals. Lenders have a unified approach towards project appraisal and they apply only standard project appraisal techniques. Bankers are unaware of industry analysis tools since even in consortium lending member banks go by the lead bank's appraisal report. The lack of a follow-up of physical assets is another flaw in the scheme of bank lending. Banks use borrowers' reports for verifying the end-use of funds. One can, therefore, imagine as to how lenders have been misled by the borrowers. Lenders and borrowers have ready back-end systems in the form of corporate debt restructuring(CDR) schemes once the unit shows signs of sickness. CDR schemes are even blessed by the Reserve Bank of India because it has vested interest in showcasing better financial health of public sector banks. The writer has suggested relaxing foreign direct investment norms to invite global majors for taking over the ailing units. In such cases, the lenders may have to write-off about 90 per cent of the dues since the price offered is too less. As for the mis-appropriation of funds by promoters, lenders do not have data-based evidence and would not, therefore, be able to fix them.

K V Rao Bangalore

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