VG Sidhartha founder of Café Coffee Day (CCD) commits suicide due to debt pressure. One more big name to fall in the Indian corporate world. 8000 crores of debt at stake, where almost all the banks have exposure except Bandhan Bank. Along with them a handful of Mutual funds too.
In his last letter to the employees and board, he states that, all his debts are backed by assets. Then why should this drastic step be taken?
Don’t know how much is true of the values that are taken into account on the assets. Even if there is assets, most of it is real estate and plantation assets. Real estate is an asset which puts the holders into very bad situations when it has to be liquidated. Yet people throng to real estate because of big numbers, only to succumb to greed.
It is the same here too, liquidating all the assets to pay back liabilities will not be possible in short period and at a period where real estate has taken a back seat.
In the meantime, pressure mounts for honouring commitments and kills, some physical and many in mental manner.
Such big name collapses and having them on a continuous basis, there seems to be some basic systemic process failure in our country that has triggered this gloom.
Siddhartha says that, pressure from a PE investor and a DG in the Income Tax Dept were causing him to give up. As the news came out, both the parties are showing themselves as the cleanest now. There can be deals struck between all these interested parties who would have made big chunks of money, now they show up as the real good boys.
The financial system of our country is very poorly equipped to take the country to the next level. Till there were defaults happening and they were not caught or not made responsible, banks kept banks are starved of business, when there is some avenue available, all of them want a share of the pie.
Due to this rush, they compromise quality & also take a share of the lent money. Get a good name for the bank, by showing a good loan book at par with competition and also pocket a good sum of the lent money as kick backs from promoters who have weak balance sheets.
End of the day, none of them have an intention to cheat. Only that, they had high hopes on a weak horse. Promoters expecting that, they could manage the challenges and come out of the financial trap. Bankers having hopes that these already beaten down & tired promoters will continue their run which will some how get the loans paid back.
Finally hopes go into thin air, bankers happily blame the promoters and corporates fold.
Till IL&FS issue came out our financial system was re-financing debt and keeping the books in good condition. In this period if the promoters had some challenges, they borrowed from other sources and made good of their commitments. Now, funding has totally stopped, all of a sudden the lending community shut shop & went vigorous on collections, which they themselves know will kill them eventually, as the exposures are with very thin line of cover.
With promoters running from pillar to post to help keep their commitments with the lenders, attention to business has eventually come down. In an already slowed market, lower attention will further deteriorate growth.
There is a possibility of some more big names going down before we see a fruitful solution to the financial crisis that India has entered into.