In the last blog, we disused the remedies for easing the plight of NPAs by proposing rehabilitation banks. In this blog, we will discuss another solution ’ Management Agreement Contracts’.
Management Agreement Contracts will enable NPAs to turn around and bring them in a sound position, enable them to repay the credit advances & take charge of their business.
Through this, large companies who don’t have any conflicting product lines with NPA, but have businesses that complement each other, can enter into a management agreement contract with NPAs. In such a case, NPAs will be reasonably guarded against the bank action subject to certain precautions to be taken.
- Here the benefactor company can provide the funds to the beneficiary NPA to meet the market requirements & enable them to repay the bank credit advances & regain the market position. After the be
- After the beneficiary NPA is in a stable position to run its business & keep the flow of credit advances to the banks going, it can take back the charge of its business.
- Government in this scenario should consider some incentives to the benefactor companies who are entering in this management agreement contract. Government should extend subsidies in terms of taxes, utility rates, land tax , power & water bills etc. To explain this further, let’s take an example of farmers. Government facilitates them with power for agricultural requirements on subsidized rates. This enable them to overcome the hurdles in terms of producing good harvest.
This arrangement will arrest the deterioration of NPAs, who contribute significantly in the economic growth of the country. The banks in such case will be unable to take any actions in terms of compelling the NPA to shut their units or liquidate their assets to repay the credits. It’s time that we boost the SME sector in a real sense & assure them a win win situation by avoiding their downfall.