Ideas and Experiences

Abstract

In the October-December 1987 issue of Vikalpa, R Siddharth questioned the practice of financial institutions of prespecifying, and publicizing project appraisal in terms of debt-equity norms. He argued that this practice diverted attention from market and competition that determined the debt servicing capacity of a firm. In the October-December 1987 issue, Vikalpa also presented the views of a Development Banker, who argued that norms were used flexibly and that project appraisal took account of the expected stream of earning from the project. In this issue, Siddharth argues his position in the light of the Development , Banker's clarifications. Vikalpa also presents the comments of S K Bhattacharyya. Besides comparing lending practices of institutions in several countries, Bhattacharyya points out that the record of financial institutions in India shows that while in evaluating project proposals they may be risk averse on account of their excessive “faith” in financial ratios and numbers, they border on being risk prone on the loan administration side. They do not appear to have adequately recycled insights from experience to revise their norms and project implementation related practices.