The Vanishing Billions
Kundapur Vaman Kamath, the former boss of ICICI Bank and the New Development Bank, has a simple explanation for why many of the erstwhile large business groups, led by wellknown industrialists of the time, fell. The one big reason, the ace banker says, was that raising large amounts of debt to grow the businesses was seen to be the right thing to do at the time. Kamath, and many other bankers like him, have seen a number of these business groups set out a scorching growth pace backed by humongous amounts of debt, only to find themselves either at the wrong end of business cycles, or faced with withering demand. As these groups chased growth ambitions — often in unrelated areas — and borrowed to feed these plans, servicing these large amounts became unsustainable over time, causing several to default with the banks. In contrast, most successful corporate houses of today realise that piling on large amounts of borrowed money could be suicidal and had been cleaning up their balance sheets over time. In the early-2000s, companies began reducing their total debt-equity ratios from around 4.8:1 to 2.8:1 and, by the end of 2010, further to around 1.8:1.
But in the more recent past, something else changed. And dramatically so. The advent of the Insolvency and Bankruptcy Code (IBC), clearly one of the most important reforms witnessed in Corporate India in recent times, has meant that errant promoters of business groups, who recklessly chased growth ambitions on borrowed money, could end up losing control of their companies altogether. Gone are the days when, as a former finance minister had put it, promoters would come to borrow money from banks in modest cars, and later return in luxury vehicles to announce they were not in a position to pay back the loans. Today, promoters who default are ending up seeing their companies go to others through the National Company Law Tribunal (NCLT) process under the bankruptcy code. The endgame earlier was banks losing money, and defaulting promoters retaining control over their companies. Today, the fact that promoters can lose control of the companies they built over decades is bringing about a change in their behaviour.
Nevin John’s cover story on India’s fallen billionaires traces the journey of a few such prominent industrial groups, how they grew, the ambitions they chased, and their subsequent collapse. Many of these industrialists were poster boys of an earlier time, diversifying aggressively and betting on businesses which eventually came crashing down. Their stories provide important lessons to entrepreneurs about building businesses, and growing them responsibly.
This story apart, I would also urge you to read Anand Adhikari’s analysis of why, despite the demonetisation effort of 2016, India’s cash-to-GDP ratio has been consistently growing since, and currently stands at 14.6 per cent. The story tracks the big cash drivers in the system despite the rise of digital payments, the challenges in infrastructure which are leading to increasing cash transactions, and the lessons from global markets.