Letters: Personal guarantee

Lenders have become laughing stock in presence of promoters who refused to offer personal guarantees

With reference to “Banks want RBI to relax debt recast guidelines” (March 6), lenders have become a laughing stock in the presence of promoters who have refused to offer personal guarantees. An alternative proposal made by lenders to insist on the personal guarantee of new promoters is even more baffling. First, let us consider the second point. If banks insist on the personal guarantee of new promoters, they will definitely back out and there would not be any change in management or promoters. As for the first, why have lenders been insisting on the personal guarantee now when they had opportunity to insist on their guarantee in the first instance and not when the loan has become a non-performing asset?

Lenders usually insist on personal guarantee of borrowers in small-ticket loans. But for big-ticket loans, banks have fashioned themselves on not insisting on the personal guarantee of promoters. Who else is responsible for this anomalous situation other than lenders? Even on the issue of personal guarantee, lenders can seek imprisonment of the borrower and guarantor. In such cases, the expenses should be borne by the lenders. Lenders in India have never sought their imprisonment on the plea that it will not solve their bad debt. The real reason behind the reluctance of lenders is the procedure and follow-up issues pertaining to imprisonment of borrower/guarantor. They have missed out on an important point that such an enforcement of the condition would create a huge moral pressure on the borrower and guarantor family. They would somehow arrange for repayments in such cases.

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