3% of loan amount turning NPA is normal as per some accounts. So there will be some NPAs and some losses...
And this is actually a good thing. If loans are fully guaranteed and there are no NPAs, that only means that banks are lazy in lending (have exceedingly high lending standards which shuts out much of the market), and entrepreneurs are risk-averse. Entrepreneurship by definition is risky. Nobody wants to fail but often they do. Entrepreneurs cannot and should not be penalized for business failures beyond the limited liability drawn up during company formation, otherwise entrepreneurship itself will collapse with it any form of future growth and innovation.
(they should very much be penalized for fraud, that is a different story)
Entrepreneurship by definition is risky. Nobody wants to fail but often they do. Entrepreneurs cannot and should not be penalized for business failures beyond the limited liability drawn up during company formation, otherwise entrepreneurship itself will collapse with it any form of future growth and innovation.
The fruits or lack of it thereof in any enterprise, is the sole responsibility of the so called "entrepreneur" In India this has taken on a very peculiar definition of it's own, one that always capitalizes profits and insists on socializing losses, losses that are invariably backstopped by the taxpayer while the serial "entrepreneur" moves on to his next
err, enterprise. Rinse and repeat.
If an entrepreneur "fails" its because his due diligence was not good enough, he failed miserably because he did not understand the risk or simply did to care to understand it, failed also to correctly assess the market conditions, current and expected future trends and make provisions for it, entered a business which was not conducive to his particular brand of entrepreneurship, or finally, failed due to sheer incompetence or, as is more usually the case, the sly bugger simply intended to swallow the loan under the guise of "business failure" and never ever intended to pay back, depending on some mummy or daddy to stop all due legal processes for recovery.
If a loan dependant entrepreneur fails for any reason, screw the effing b@$turd, let him carry the can, sell off his wife's jewels or peddle his gluteus maximus on dalal street. Whose father what goes??
That's where the question of >100% collateral comes into play. If you and I are always expected by the banks to pony up >100% collateral for loans that we take, why not the so called "entrepreneur"??
If you and I, purchase a house/flat, are we not "entrepreneurs" in our own right?? Isn't an asset created?? resulting in sureshot jobs created for plumbers, drivers, carpenters, gardeners, delivery guys and housemaids?? just to name a few.
Don't we help local businesses by purchasing their goods and services from nearby areas, spending money in kirana shops, malls, vegetable vendors, hotels, schools, hospitals and other businesses, pay local taxes etc etc??
Yes, we too are legitimate "entrepreneurs" but no one recognizes that very simple fact.
If you and I, default on our "loan", the bank does not hesitate, even for a single minute, to take over the pledged collateral and auction it off.
Collateral that always exceeds in value the very loan that it is pledged against. The bank is always risk free and completely covered in all cases.
However "entrepreneurs" are in a different category. For them, it is all no risk and only profit, Business failure or success is irrelevant and immaterial because mummy and daddy are always watchful and they rush to head off the debt collectors at the proverbial pass. We, the taxpayers, are always the buggered party.
Just look at newspaper ads announcing "auctions" of bank seized flats, houses, cars, trucks, small industrial sheds etc.
Aren't they all bank loan defaulters whose assets after seizures are mercilessly being auctioned??
Do we even care for such "business failures"?? Of course, we don't because they don't matter, no??
Sauce for the goose and sauce for the gander story all over again.
Such ads never appear for huge conglomerates defaulting on their loans.
We have no mummy or daddy to intervene on our behalf, but they all have, no??
But as taxpayers, we are routinely taken for granted and forced to endlessly fund an ever growing parade of expensively dressed in designer clothes "entrepreneurs", who blithely and confidently scam their way from one loan funded "enterprise" to the next.
so, entrepreneurs can and should be penalized for business failures. Failures are an undoubted learning opportunity, both for the lenders, in terms of refinements in risk evaluation processes, refinement of lending metrics tailored to market and industry segments and also for borrowers in terms of risk incorporated business plans, using sectoral consultants to understand and forecast emerging trends and evaluate and factor in risks for ensuring business continuity but sadly, they also have tangible consequences and entrepreneurs must be accountable. There are no free lunches.
Such a specious discussion would not even be taking place in any other civilized society where people are routinely expected to live or die by the market and not look for perpetual handouts to line their pockets from public funds.
This is the tradition the world over. No need to make any exceptions in India for genuine "entrepreneurs" or crooks in "entrepreneur's clothing".
It is but natural that some wheat will always be lost with the chaff.
Just let it go. It is a jungle out there. Only the fittest should survive.
If, as a loan taking "entrepreneur", you fail, first cut your own protected throat because what such a failure actually does is, it sure cuts someone else's unprotected throat, and that someone may have worked even harder than you, just to get where he is at.