Monday, 13 December 2010

Turnaround King(pin)s of India

The title of Turnaround King was given to Jack Welch for his wonderful job at GE and also to Louis V. Gerstner for his historic turnaround of IBM. Nithish Kumar was given that title for his great turn around of Bihar. Come to think of turnarounds of economies and businesses one has to wonder why such a nation brimming with brilliant minds, have starvation deaths in the first place, keep aside Governmental apathy towards that for discussion later.

With the Radiagate exposing journalists doing a kind of a second job as political  lobbyists for vested interests viz friends, NDTV has more explaining to do on it's own loan scam, along with Barkhagate. The electronic media has not even reported the NDTV-ICICI Bank nexus in getting the former out of a financial quagmire, when compared with the standards it reported any other scam. Most of the electronic media masters today are disciples of Dr.Prannoy Roy, but attributing that as a reason for this act of omission, enough to suspect act of commission though, would damage the standards of journalism once upheld and mentored by Dr.Roy.

The deal between NDTV-ICICI Bank took place between July and October 2008 during a "buyback" of shares from the stock market announced by NDTV Limited at the price of Rs 439 per share, which is done through raising funds by alleged false declaration of the value of shares. Share prices were sky-rocketing at that time and NDTV Ltd expected prices to rise even further. So, it wanted to buy the shares back. Since the company did not have sufficient liquid funds to finance this purchase of shares, it took a loan from India Bulls Financial Services of Rs 363 crores, pledging 90 lakhs of NDTV shares in July 2008.

In August 2008, the stock market collapsed due to the subprime crisis in USA and the NDTV shares plummeted to Rs.100 from Rs.390. India Bulls recalled the loan since the collateral depreciated. But NDTV for want of cash to get through this problem approached ICICI Bank for loan. ICICI took NDTV shares worth Rs.200 crores and lent Rs.375 crores. The moot question is how the bank chose lend such a big amount at such a value of collateral when the original value of the collateral was much lesser.

The price of the shares offered as collateral was not INR 400+ as declared, but lesser than INR 100 at the time of the mortgage. So, INR 375 crores was given out for a collateral value of INR 45 crores. Since such huge amounts of money would not be easily given out, ICICI Bank has to do some answering on this as it is a publicly traded company with Government and quasi Government institutions having a substantial stake in it. RRPR Holding Private Limited had, in fact, bluffed its way to get this loan, but the question is on the verification mechanism employed by the Banks.  

The finacial reports on the NDTV website say that the NDTV Group has been consistently posting only loss quarter-on-quarter, since the year 2009. Right thinking business minds would wonder how a loss making company has enough cash-flows to sustain itself for close to 2 years and still buy-back a large bulk of its shares in the open market. Also, this clearly shows that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
was flaunted out in the open.

The exemption granted , as claimed by NDTV, could be legally challenged and on questionable grounds. But the moot question here is how a loss making company was able to convince the bank and the regulators that their shares were worth what they were quoting and not what the market said? Also, the claim that all the financial transactions were advised by PwC, brings a lot of questions in. PwC advised Satyam and was under fire for condoning financial misdemeanor. This malfeasance has happened during the same period and had the regulators not even raising eyebrows, leave alone acting against.

The ICICI Bank was holding 17.75% stake in NDTV since 2003 which was a NPA during the issuance of the loan, since the stock was NPA as NDTV was posting loss continuously. The silence of the MCA is understandable given to understand the quality of the ruling set up vide Radiagate. But the silence of the RBI is painful, since it was an institution that stood firmly against the suggestions of the then FM P.Chidambaramto follow the US model in the interest rate issue thus saving the national economy from following the US way into the infamous subprime trap.

The worrisome part in this scam is the RBI's inertia which poses serious questions about the independent functioning of the institution. Also, the sanctioning of the said loan poses serious questions about the approval mechanism followed by the commercial banks. For small businesses, loan sanctioning takes a lot of scrutiny and lot of time. But this is methodic deception by NDTV and ICICI has chickened out for reasons those would come out only upon proper investigation.

We need to look at another related fact that the TATA Nano sale was down due to banks' reluctance in sanctioning loans to customers fearing defaulting. Doesn't this send a weird signal to the lay people that the bigger the the amount you take as loan the greater you can flaunt the regulations? The haves collude with the trustees of public finance and swindle public wealth leaving the havenots lurch in the darkness of poverty.

The economic problem of the widening gulf between the haves and the havenots is getting serious day-by-day in every way in India. This may not pose a serious problem until the basic economic necessities are affordable so the general public, which generally comes in the havenots category. But here in India, with wasted and looted food grains and Government remaining inert in such serious crimes while the general public starves could result in two possible situations.

One could be a revolution where the public comes to the street and demands the rights. Two could be mass deaths because of starvation and lack of other basic economic needs. With the public attitude being subservient even in the face of heinous crimes against them in India, we could not expect the first situation to come up. The second situation could be a possibility, an alleged happening with alleged concealing of facts though.

This may end up the people siding with separatist forces which flourish on money from across the political border. The current situation of corruption in every step of Government could end up the nation in chaos. We have a class of people employed in MNCs enjoying the luxuries of life, ignorant to the prevailing problems in the world around them and another class which cheats with method and live a luxurious life ditching the foundation of the political set up. We also have another class which laments and raises voice for the affected class, that is the judiciary, but that too is suffering from the corruption fever now and then. The media known as whistle blowers, blow the looters and get their share thus handing a thunderous blow to the democratic set up.

Unless someone sits up and takes stock of the situation and act with some human sense, we the people of India, will have to lurch in the dark. Given the economic imbalances and the political chaos, the nation needs a turn around King not kingpins looting to turnaround and turning around to loot royally. The problem plaguing India now is the ratio between Kings and kingpins, democratically speaking. Kingpins and accomplices of ruthless loot outnumber Kings and soldiers of real turnaround. Majority rules in a democracy. The need of this time is to give majority to Kings and soldiers of true turnaround, for the good of the economy.

1 comment:

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