The NPA is a fraction of the problem for Indian banks. They will employ a team of lawyers and / or sell NPA to ARCs to get rid of such accounts. They will get capital from the Govt.
But for entrepreneurs having an NPA, it is the mega problem for them. Their other good accounts will get affected; no one will lend them, they will be at a risk of selling of property mortgaged to the bank. It’s a very stressful situation. Mostly most small NPAs are not willful but ignorant NPAs. Read more.
A few years ago, one of our clients approached us to help them in raising finance for their packaging unit. Two entrepreneurs, well one entrepreneur and one technocrat. The entrepreneur was riding on the passion of the technocrat. (Technocrat’s blind passion is many a time reasons for business failure).
They had identified machine from Germany to manufacture packaging items for the food industry. Technocrat was extremely passionate about the capacity and quality of output of the machine. They were confident about sweeping the packaging market with the first of its kind machine imported in India.
Our heartfelt tribute to Mr. Lalit Sheth (Owner of Raj Travels). This is very unfortunate incidence and shaken many who are in business world.
Are there any lessons entrepreneurs can learn from his sudden and tragic death ?
Well I think many.
Borrowing is easy but its servicing of debt and repayment of debt drown many families. Be it farmers in interior Maharashtra or entrepreneurs like Lalit Sheth, unmanageable debt is a killer.
We have many many cases of NPA and over borrowing and situation is close to alarming. As long as cash flow is sustained (not necessarily profit) one would not realise the gravity of situation.
How analysis of viability of the project is critical and me too kind of approach is disastrous. I have also known many such cases where entrepreneurs merely on the basis of gut feel ventured into the project , borrowed heavily than the project can sustain and ultimately they had to sale their even their personal assets , faced legal battle to save their mortgaged home and suffered socially enormously.
Lenders and bankers are also not playing proactive and supportive roles while lending and during the tenure of the loan. They have access to the critical data and can very well play a vital proactive role more than just collector of interest and then filing suit when something goes wrong. Prevention of foreseen disaster is a joint responsibility.
This kind of financial status is also very difficult to manage socially. There is a club run by a CA made up of entrepreneurs who are facing bank’s action and whose assets have become NPA. This kind of club helps their family members to realise they are not alone and learns how to face the reality and even come out of the same also.
Having a strong internal CFO is a must these days. I know many entrepreneurs in SME segment who do not understand the reading and implication of their balance sheet. Its very dangerous. Entrepreneurs must know their financial status i.e. actual and not fake as shown to bankers /tax authorities. Alternate MUST have CFO, absolutely dependable and proactive. He must see problem coming, warn the management /owner and know the corrective measures. SEBI is making efforts to spread investor education on a large scale but there is also strong need for entrepreneur education. Everyone is working for money but ignorance about its PLAY is wide spread.
Last but not least, I do not know what is the brand value of the Raj Travels? Must be very high. Such a great asset could have been leveraged to taken care of liabilities, atleast some. This is where CFO or Investment Banker can be of great help. Do you know what your real assets are !!!
This is written merely with the public information about Mr. Sheth’s grave financial situation we all have from news papers. No advice or analysis of his real situation. This write up might benefit some readers.