The story goes: when a borrower owes his bank 100,000, he loses some sleep; when he owes 1,000,000, the banker loses sleep.
When does it make sense to lend money? Simple answer would be when it is certain that the borrower is able to repay the money and interest payments.
When and how will that certainty be there? That is when the borrower is worth several times over the money borrowed.
That sounds prophetic. But then why would the lenders do what they are not supposed to do?
Year ended 31 March 2011:
Quarter ended 31 March 2012:
As per this article the company's debt stands at whopping Rs.4,000 crores in 2012. How did the company manage to borrow so much?
Correction: how did the lenders lend so much to that business? How did the lenders view of their loans?
Repayments do not come out of air; no assurances no promises; you need to see cash profits for the business to be able to repay.
And ouch! the analysts:
With a market valuation of about Rs.180 crores for equity, and debt running many times over, the lenders deserve that treatment. The only problem is: it is not their money; it is the lenders' lenders' and lenders' owners' money.
While we can get away with saying that the lenders' owners deserve that treatment too, it cannot be said for the lenders' lenders. For the lenders' lenders are the common people who have put their hard-earned money into the savings account with those lenders.
Too bad!
When does it make sense to lend money? Simple answer would be when it is certain that the borrower is able to repay the money and interest payments.
When and how will that certainty be there? That is when the borrower is worth several times over the money borrowed.
That sounds prophetic. But then why would the lenders do what they are not supposed to do?
Year ended 31 March 2011:
Quarter ended 31 March 2012:
As per this article the company's debt stands at whopping Rs.4,000 crores in 2012. How did the company manage to borrow so much?
Correction: how did the lenders lend so much to that business? How did the lenders view of their loans?
Repayments do not come out of air; no assurances no promises; you need to see cash profits for the business to be able to repay.
And ouch! the analysts:
With a market valuation of about Rs.180 crores for equity, and debt running many times over, the lenders deserve that treatment. The only problem is: it is not their money; it is the lenders' lenders' and lenders' owners' money.
While we can get away with saying that the lenders' owners deserve that treatment too, it cannot be said for the lenders' lenders. For the lenders' lenders are the common people who have put their hard-earned money into the savings account with those lenders.
Too bad!
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