This Haircut Can Kill

Snipping away at unkempt hair and sniping at thousands of crores in bad loans are vastly different. Get either wrong, though, and you will have a bad hair day

- RAJEEV NARAYAN

"If you owe ten pounds to the Bank of England, you get thrown in jail. But if you owe a million pounds, they put you on the Board." -Philippe Riès

A headline or two (and more) in newspapers last week caught my eye, leaving me bemused. 'IBC cases dip in India,' they celebrated. These expert number-crunchers and line-toeing conformists were, of course, being subservient to their masters while reporting on unpaid loans (or bank NPAs/bad debt). They were somewhat right; the number of cases filed in FY 2023-24 had indeed dipped over FY 2022-23, by 257 to be precise. They were wrong too; for they mysteriously failed to mention that actual recoveries had also fallen-by 12 per cent in a year, or by Rs 37,551 crore in percentile value terms YoY.

Bankers call post-resolution unrecovered debt a 'haircut'. Haircut indeed. Typically, this involves snipping away at a head of unkempt hair. Sniping at thousands of crores in bad loans is a bit different. The only common thread is that when the process goes wrong, people have a really bad hair day. I can but laugh mirthlessly at my brethren in the media who call this development a 'revival' and other saintly words. They are failing to tell you that when large Corporates default, they set in motion a chain reaction-with the zipper being pulled down belonging to you and me.

That takes us to 2023. Banking danger bells pealed in the US, with reverberations being felt in India.

Two top banks-Silicon Valley Bank and Signature Bank-almost downed shutters, leaving India and the rest of the world worried. The Reserve Bank of India issued warnings to banks, advising a hawk-eye scrutiny of balance sheets and NPA figures.

The saving grace was that India, by that time, had already weathered the Yes Bank and Punjab & Maharashtra Cooperative Bank scares. At that time, forewarned was forearmed. But we might not always be so fortunate.

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