Promoters, management should be alienated for corporate misdemeanours: S S Mundra

Reserve Bank Deputy Governor SS Mundra (Photo: PTI)

Coming down heavily on loan defaulters who were involved in misdemeanours, Reserve Bank Deputy Governor SS Mundra on Friday said such promoters and managements should be alienated and new promoters should be brought in to take over their businesses. Mundra also warned banks against going fully into retail business saying “retail is not the panacea.”

“There’s a need to distinguish between genuine difficulties and misdemeanours,” Mundra said, classifying the defaulters into three categories: promoters facing genuine difficulties, promoters who showed misdemeanours and those who showed imprudence. “Some were involved in gold plating, veiled corporate structure with some debt here and equity there, diversion, bloated projections and unrealistic assessment. These are misdemeanours … and these promoters/ management should be alienated,” he said while addressing a FPJ-Indian Merchant Chamber seminar on non-performing assets (NPAs).

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According to Mundra, there was another set of promoters who showed growth obsession and built excess capacity and ventured into unrelated diversification. “This is imprudence. In such cases replace the current management or they (banks) may allow promoters to continue for present but they need to take a hair-cut,” he said.

He said there are promoters facing genuine difficulties like time overrun leading to cost overrun, clearance issues, delayed implementation and coal block and spectrum allocation issues. “In such cases, banks can extent a helping hand to existing promoters,” he said. Cautioning banks on focussing heavily on retail business, Mundra said they need to have an ecosystem to take care of the retail business.