With notices and seizures, crackdown on India

industrialists refused to even pay interest as they misused weak laws and political influence while continuing their champagne lifestyles.

‘‘We’re going slow because we want to give time to defaulters to come forward with proposals for repayment or restructuring of loans,’’ says P P Vohra, chairman of IDBI. Going slow hasn’t stopped IDBI from issuing notices to 35 companies.

IDBI also heads a consortium of banks that has seized property worth Rs 800 crore all over the country under the Securitisation Act, passed by Parliament last month but in use as an ordinance since July.

A rundown on some other action:

• ICICI Bank has seized flats and factories of notorious defaulters like the Mardias of Ahmedabad and the Pathejas of Pune, apart from sending notices to 31 defaulters. Last week even new FICCI president A C Muthiah was issued a notice by ICICI to repay Rs 250 crore in unpaid loans.

• The State Bank of India has sent 1,500 notices to defaulting companies for Rs 1,500 crore. Some of the owners — including hotels, chemical plants and jewellery shops — are now pleading for settlement. ‘‘If we see sincerity, we accept the case,’’ says an official.

• Bank of India has recovered about Rs 5.5 crore from defaulters after issuing notices to 511 defaulters for Rs 119.53 crore.

In all, more than 10,000 notices for the recovery of assets worth more than Rs 8,000 crore have been sent out to defaulters, says the Finance Ministry.

The signs may be encouraging, but the road ahead is long and arduous. As bigger fish are targeted, the banks will have to resist threats, political influence and enticements to demonstrate that they mean business.

Muthiah’s smooth installation as FICCI president with the Prime Minister, Finance Minister and top Finance officials in attendance indicates that it will be hard for Jaswant Singh to live up to his promise that the Securitisation Act will be enforced ‘‘without fear or favour.’’

Many of the companies sent notices are comparatively small fry. For example, Dena Bank, one of the few willing to name the defaulters it’s acted against, says it has taken over the assets of Krishna Chemicals, Ruby Coach, Shelter Industries and Malwa Weldmesh. Many of the big fish are putting pressure on banks for sweet deals like interest waivers or simply wiping out part of the debt by converting it into shares for banks.

Then there are the escape hatches. The Securitisation Act closed a favourite escape route: declare the company sick and take shelter at the Board for Industrial and Financial Reconstruction (BIFR). Under the old law, banks could not get their money back from a BIFR company. That’s gone now.

But the new law does not override state laws, like the Bombay Relief Undertakings Act, 1958. Originally designed to protect the labour force of sick companies, defaulting companies all over Maharashtra, Gujarat, Rajasthan and Karnataka have been rushing to seek shelter under similar state acts over the last two weeks.

Of the defaulters now begging for settlements, banks must also now decide who’s serious and who’s not. ‘‘We have divided defaulters into three,’’ says R. Venkatramani, general manager of the Union Bank of India, which is planning action this week against 10 defaulters. ‘‘Those who have not responded and will be acted upon firmly; those who have responded to our notices and have been classified into serious and non-serious defaulters.’’

There is of course a lot of subjectivity and judgement involved in the crackdown. An SBI official says if it looks like defaulters seem sincere in their assurances of loan repayments, ‘‘we will accept the case for settlement.’’

With B.S. Srinivasalu Reddy, Sitanshu Swain and Atmadip Ray