Debt conversion into equity Not a solution

This sort of approach to bring down NPAs only acts as incentives to willful defaulters in particular to get away with depositors funds. The solution offers only a temporary relief to banks caught in deep bad debts and that too because of indiscipline and inefficient management of the companies which were merrily accommodated by the banks due to indiscipline and lack of professionalism on their part as well. This is akin to shifting of the disease of elephantiasis from one leg to another paralysing the mobility. The menace of NPAs is part and parcel of business of banking, but this needs to be tackled professionally by imparting discipline on the borrowers to comply with the terms and conditions of bank loans which necessarily include avoidance of misuse and diversion of funds. The banks on their part have to ensure that they deal with depositors’ money and they cannot afford to fritter away these funds just to expand their balance sheet ignoring the economic merits of the credit proposals and competence, credit worthiness and capital contribution of the borrowers. Camouflaging NPAs is an art in our banking and this conversion of debt into equity is nothing but another additional window of opportunity along with restructuring of sticky loans given to banks to cover up their NPAs and deficiencies. The fact of the matter is that lack of professionalism, discipline and inefficiency of the judicial system encourage to loot the banks and this should not be allowed to go on. What is needed is a built in mechanism to enhance professionalism in banks, discipline among both banks and borrowers and improve the recovery culture with timely and quick delivery of justice by the legal system.Conversion of debt into equity only replaces Non performing loans by Non performing  investments without any sort of recourse to recover the invested money legally in case the Company fails once for all as the liability of the companies' are limited.

 Dr.T.V.Gopalakrishnan

(This comment is in response to the editorial Conversion of Debt into equity that appeared in Business Standard dated 23rd March 2015).