on foundation of trust and understanding 2. relationships demand honest discharge of certain responsibilities by the parties concerned and that alone leads to development of mutual trust and respect. this is equally applicable to a banker - borrower relationship as well. a non - receptive banker or a truant borrower is a malady that the credit system can ill - afford. the banker - borrower relationship is essentially symbiotic as both need each other. both have certain expectations from the other and when these don ’ t get fulfilled on account of a malafide or fraudulent intent on the part of either of them, the relationship gets strained. recent spurt in instances of forensic audit being conducted by bankers on their borrowers signifies a breakdown in the implicit trust. there has also been an increase in incidence of suits filed against defaulters and cases of wilful default – an unwillingness to pay, despite an ability to pay. these problems could have their genesis in a failure to exercise the right amount of prudence and due diligence on part of the banker or an ab initio intent of the borrower to defraud the bank. this, however, is not a one - way street. the bankers have also been known to be indifferent and negligent of the genuine needs or problems of the borrowers in many cases. more often than not, it is due to a lack of basic understanding of the borrowers ’ business. at times it is due to factors which are beyond the borrowers ’ control. in fact, both extremes - excessive or too little trust and due diligence can prove detrimental to banking business. a middle course perhaps would be the most ideal mix with the bankers bis central bankers ’ speeches following the right regulatory rigor and the borrowers following a model code of conduct in their dealings. 3. having set out the broader realm of the banker - borrower relationship ; let me now turn to some specifics insofar as the expectations from bankers and the borrowers are concerned and non - observance of which can vitiate the relationship between the two. 4. expectations from bankers i ). timely sanctioning and disbursal of the loans – borrowers approach the banks because they need finance. the business needs varying quantum of money at different stages. i do not need to go into the details but what is of essence is observing timeliness by the banks in sanctioning the loans and disbursing as per the needs of

in the process, they end up diluting their own internal norms such as extending larger credits than normal and also extending credit for longer periods etc. it must be understood that while the business managers may be temporary, the businesses themselves are going concerns and they cannot be expected to perform miracles even under unfavourable business environment. the efforts to appease the shareholders by all means “ fair or foul ” must end. ii ) focus on core competencies – rather than looking to make quick bucks by diversifying into so - called “ hot ” but unrelated activities, the businesses must focus bis central bankers ’ speeches on their core competencies. diversification, if at all, must be a well - considered and long - term measure rather than “ quick - fix ” decision. another trend that has caught the attention of the borrowers is taking a view on the movement of exchange rates and keep unhedged positions. the disturbing part is that even businesses with no earnings / expenses in foreign currency are taking such bets and are likely to burn their fingers. taking a view on currency is a job of the domain experts and the businesses having no core competency in the area & hence should resist the temptation as wrong - way bets can potentially obliterate a firm overnight. iii ) over leverage – excessive leverage run up by the indian corporate is a matter of great concern. over - leveraging is like having blood pressure - too low or too high, both are detrimental to the health. while banks need to do proper due diligence taking into account a consolidated balance sheet of the group ; on their part the borrowers and the large business houses must end over - reliance on borrowed funds for achieving extraordinary growth rates. operating with too little equity in the enterprise is like treading on thin ice. too much leverage dilutes promoter ’ s responsibility and has implications for banks ’ ability to recover loans. double leveraging, where promoters pledge their own shares for funding their other companies needs to be viewed with caution. this, then denigrates to a possibility where the promoter is responsible only to the extent of such shares pledged with banks while funds solicited on the strength of such securities finds its way to the books of spvs floated or the company ’ s subsidiaries. i am sure that responsible corporate borrower behavior and banks ’ mechanisms to counter the same will be given due thought in this seminar. iv ) diversion of funds – there are several instances of borrowers diverting money to real estate or capital market