A feature of India’s post Independence economy was the ‘industrialist’ who first cornered a ‘licence’, next thwarted his competitor from getting one, then swung a huge loan from a Financial Institution [FI] and happily reneged on the debt ever after. Add to that, a little more help from his political cronies in stopping imports of what he was to manufacture and you get the full picture.

India was probably unique in having a body --with an obfuscating name, the Board of Industrial Finance and Reconstruction [BIFR]—to protect bankrupt promoters. Imagine it as a sort of social security for the rich. Once a company was in the embrace of BIFR no creditor could expect his debts ever to be settled. It is believed that over Rs.110,000 crores is owed by ‘industrialists’ to the various FI. These are declared by FIs under another charming phrase, Non Performing Assets [NPA]. Used to be, it was the best club to be in.

But there are signs of change. The Reforms Engine crank started twelve years ago may be puttering along, but at least it hasn’t coughed and died. In fact it may now be perking up. There has been a series of landmark events: the dismantling of the licence system, permission for foreign investment, accountability norms and stock market reforms.

Finally, on Nov 26,2002, the Parliament passed the Securitisation Bill. When FIs are justly convinced a borrower is a ‘wilful defaulter’, they can now serve a 60 days’ notice and take possession of his assets. The slow dance with the borrower may be over.

Anticipating the passage of the Bill, ICCI had served notice on Mardia Chemicals two months ago. Within 2 days of the bill’s passage, ICICI arrived at Mardia factories in Ahmedabad and took charge of its assets.  Mardia has the dubious prospect of being forever remembered in India’s economic history. ICICI was leading a consortium of 19 other FIs and banks. Mardia’s assets were seized and will be auctioned in satisfaction of the Rs.1450 crores it owes the consortium.

Business newspapers these days are sprinkled with once famous names being hunted down for recovery of dues.There have been cautionary voices too, advising lenders who are itching to race out waving the new law. True wisdom would be in determining who *wilful* defaulters are. Otherwise, a new crop of cases may arrive in the form of lender liability litigation. 

Growth without discipline will take India nowhere. In fact, we have been smugly dismissing China’s growth citing the huge volcano of NPA it is rumoured to be sitting on. The new bill rewrite the scary script for India and bring some sanity to the industrial scene.