Lessons from a private sector fiasco

By C. R. L. Narasimhan

Recent happenings at Tata Finance, a leading financial services company, have their message for a constituency much larger than the non -banking finance sector, to which it belongs. It certainly has significant points for analysing the UTI fiasco. A brief synopsis of recent reports concerning Tata Finance will be in order.

Following the discovery of certain unauthorised loss-causing transactions that have been attributed to its previous top management , five of its senior officers including its Managing Director have been asked to go. Allegedly, Tata Finance, operating through its wholly owned investment arm Nishkalp Investment, played the stock market with disastrous results. Rating agencies have been seized of the matter and the finance company's non convertible debenture (NCD) and commercial paper programmes have been placed under watch. The RBI is also reportedly holding talks with the owners of the company. With a strong name behind it, Tata Finance should hopefully come out of the quagmire soon.

It needs no repetition that confidence in the financial sector is really a factor of the combined perceptions of its leading institutions. Any damage to Tata Finance's reputation will affect the whole sector. For Tata Finance the dent in its reputation will be more injurious than the loss that will be reflected in its balance sheet. That is why, for instance, a vote of confidence in its new management by the House of Tatas will have a quicker, more lasting effect than even the capital infusion to cover the loss. Early reports indicate that elaborate restructuring of Tata Finance is under way. Loss containment here is really about containing negative perceptions. That is where the owners of Tata Finance have adopted a fundamentally different stance from the one adopted by the Government in its dealings with the Unit Trust of India.

Similarities and differences

Up to a point the Tata Finance episode runs parallel to the US-64 fiasco. The stock market, it is that has swallowed the erstwhile top managements of the two institutions. Neither Tata Finance nor for that matter UTI is unique in its disastrous experience with stocks and shares. The list of companies that have had their reputations and bottomlines burnt by the stock market is long. The urge to make quick money is what prompts people who have all their expertise in their mainline activities to dabble in shares. Many more names will be added when disclosure requirements are tightened. UTI however is in the business of making money for its unit holders through judicious investments in stock market instruments, a function which its critics say, it did badly.

Tata Finance's investment arm had bet wrongly on some new economy stocks most of which lost heavily over the past one year. The US- 64's troubles are also to a large extent attributable to its belief in technology stocks. But whereas UTI's then top management is being made to pay heavily for patronising Cyberspace, the accountability fixing exercise in the private company is not so specific. In any case, whatever action Tata Finance chooses to take against its delinquent employees, it will not be - and need not be - in public domain, in the full glare of publicity. The accountability fixing exercise in the UTI - with CBI action and all - whatever be its justification, has certainly aggravated its problems. At another level, it also suggests that political leadership would rather wash their hands off than be held (even) remotely responsible. That strategy has amply backfired as borne by the parliamentary debates of last week.

The difference then lies in the ways the two institutions - UTI and Tata Finance - are allowed to recover from their respective crises. UTI, as everyone knows, is at the receiving end of extraordinarily bad publicity. The Government itself has worsened matters: it has appointed a committee to probe the Trust's past transactions over a long period. More immediately it has sought to fix the blame on a few of its top executives. And improbable though it looks the Government and its investigative agencies are hell-bent on establishing that a few failed deals - of which Cyberspace is the most notorious - explain all that went wrong.

Unravel these deals and you establish criminality, they seem to say. Accusations of criminal behaviour are enough to close the case .It is not necessary to have a standard of proof that will stand in a criminal court. That of course is the biggest charade that goes on in the name of cleansing the public sector. Innuendoes, planted stories, even whispers are sufficient to fix a marked man .In the private sector however accountability issues while being important are handled with more circumspection - and for the benefit of the company and its stake holders.

Who gains? Who loses? A time has come for the Government to project its interests and in any case not devalue the substantial achievements that have gone to make the public sector. The government's dominance over the financial sector might have been caused by past policies. But at this juncture it is something nobody, least of all the government, needs to be defensive about. It is the association of the government that will see UTI through.

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