Ease of Doing Business for MSMEs: Not providing up is a sign of resilience. It does not imply that providing up on time is a sign of failure. Indian companies and regulators see it otherwise, maybe, not realising that the expense of not providing up could be more pricey than providing up on time. The circumstance of stressed assets is hardly surprising, offered the economy’s stressed assets had quadrupled from $26 billion in 2015 to $106 billion in 2020. Thus far, regulators have produced quite a few attempts to mitigate the circumstance. None appears to have worked. I categorise the attempts in 3 segments:
First is monetising the deposits, forex reserves, and shuffling the unutilised investments in Financial Institutions, Strategic Debt Restructuring (SDR), which makes it possible for trading of non-performing assets to new owners, Sustainable Structuring of Stressed Assets (S4A), tweaking of norms of CRR, SLRs, and so forth.
Second is government repurchasing the stressed assets or setting up Asset Reconstruction Companies (ARCs), Asset Management Companies to handle the stressed monies by recovering them, defining Insolvency and Bankruptcy Code (IBC), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act and stressed asset management verticals, and so forth.
Both the segments of attempts have not resulted in any material advantage to convert poor dollars into great. The recovery prices are about 20 per cent, and the haircuts are about 80 per cent of which liquidations make a significant portion, which itself is a worrying reality. The approach of transferring impaired assets has stopped as the AMCs and ARCs do not uncover it worthwhile to do it offered the lack of clarity in the demand circumstance.
PSBs, even though enhancing marginally in recovery prices, are far away from getting in wholesome situation on the Capital Adequacy Ratios (Automobiles). Private lending economic institutions are wary of significant large corporates offered the sleuth of frauds and scandals breaking the back of some of the economic institutions in the final 3 years and with the pandemic are wary of rising exposure to smaller and medium-sized companies. Finally, the government’s reserves are in the state of an impasse with either the take-off of the announced schemes is underwhelming or the regulators are worried that the only silver lining of the clouds on the economy really should not turn into copper really should these funds be used to rescue the stressed asset circumstance. In summary, the named rescuers are anxious to rescue the victims, and victims are unable to rescue themselves as their companies are shy of self-assurance in development, resulting in a deadlock.
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The third segment is the one not believed of adequately. It is to concentrate all efforts in concert in a warlike mission to not rescue the companies with a aim to keep invested but by divesting from their existing companies on time and churn the portfolio. It may well look really hard, cruel, and even undemocratic, but it is important.
We will need to flip the focus from investments to divestments, determine exactly where we will need to reduce the cord quick at the systemic level for the deserving ones to survive, prosper, and scale-up. This is not bailing them out by infusing more funds. This is about rescuing the victimised companies to be out of what has dragged them into the quagmire of debt, unprofitable ventures. Regulators really should invest their sources in educating themselves and companies to know what companies really should not do more than assuming that they really should continue in their existing companies and hold looking for answers. Giving up on time, in some cases, could potentially be a superior method than not providing up at all and maybe the very best rescue that is out there for a lot of Indian companies.
Samir Sathe is Executive Vice President, Wadhwani Advantage at Wadhwani Foundation. Views expressed are the author’s personal.