It is a rich to rag story. No it is not one of the biggest defaulters Vijay Mallya, who virtually received unsecured loans of Rs 9,000 from consortium of banks. He has gone smiling all the way. It is the government bank themselves biting the dust as they squander away public money threatening the economy.
Mallya has escaped to a royal villa in the UK and SBI head Arundhati Bhattacharya is now crying that Mallya had not told her of his assets. How innocent Bhattacharya is !
It is certainly smart of Mallya. But what Bhattacharya and her bank were doing? She needs to remember that she is paid salary in crores to protect the deposits of poor people. The banks are mere custodians of depositors’ money and they need to guard it. A borrower, all banks know, is supposed to behave erratically. But can the banks also behave in a callous manner. Should we not punish the erring bank officials?
Today public sector banks have net losses, couched as non-performing assets (NPA), of Rs 4.4 lakh crore. Till 2009 it was around Rs 1.4 lakh crore and was considered even then as bad for the health of the banks. At least Rs 1.5 lakh crore loans have been written off during the last two years.
Banks have so far tried to largely cover up the bad loan issue by postponing the problem till the RBI put a deadline of March 2017 for banks to clean up their balance sheets. The RBI’s role as regulator also needs relook.
Are banks being merged to cover pug marks? It must be shelved.
It is one of the worst situations since the Harshad Mehta, Ketan Parekh, UTI and LIC scams puts together.
A joint parliamentary committee (JPC) must be set up to find out how over 100 large companies have emerged as ‘defaulters’ during these few years. It needs to look into the functioning of the banks as well as corporate books. The JPC should expose just not Mallya, but also other corporate defaulters looting bank funds apparently with connivance of the bank officers and may be even some political leaders.
A small home or car loan defaulter is acted on swiftly by the banks and his assets are attached if one fails to pay three monthly installments. How could IDBI bank give Mallya loans of Rs 900 crore for his Kingfisher Airlines despite its low credit rating? It was approved by IDBI CMD Yogesh Aggarwal even before the loan was formally sanctioned.
The nation should remain thankful to Mallya for exposing the chinks. Almost, may be with miniscule exceptions, most lending to corporate are suspect. The nation needs to go deeper to fix responsibilities and exemplarily punish those who aided the lending process.
In the last eight years, the government has infused Rs 90,000 crore in India’s 27 public sector banks. This fiscal (2015-16) alone, the government has so far infused Rs 20,000 crore out of the promised Rs 25,000 crore. The next fiscal it is to infuse Rs 30,000 crore.
If the government doesn’t simultaneously initiate action on large corporate defaulters to recover thousands of crores of money they owe to banks that would mean taxpayers’ money is used to bail out banks looted by large borrowers. The poor depositor is at loss at every step – his deposits are unsafe, he gets measly interest rates and taxes he pays are utilized to recapitalize the malfunctioning banks. He is also levied higher charges and lower interest rates for banks’ defaults.
Mallya is only one of the flashy borrowers. There are many others who have larger exposure, a real estate firm also into expressways earning tons every day have defaulted by Rs 95,000 crore since 2008. No action is known to have been taken.
Another alarm bell is tolling as Jaiprakash Associates fails to pay interest on convertible bonds. It means the bond buyers have to be cautious. Those advocating the bond and equity route, normal western practice, for the corporate to raise funds need to rethink.
Some like JSPL are faltering on repaying $ 550 million to consortium of foreign banks. It is a concern as it affects overall creditworthiness of Indian corporate. The malaise seems graver.
Many banks had converted their loans into equity in the failing Kingfisher Airlines, hoping Mallya would bring in his share of funds, which never came. It is a virtual “gift” to a defaulter as such shares yield nothing – a common practice. If the assets were put on sale, their losses may have been curbed.
Banks have also been considering intangible assets like brands as security. Promoters should be told to give personal guarantees and firm collateral. The banks never objected to Mallya a willful defaulter on the board of United Breweries since 2005, when Kingfisher started nose-diving till 2012 when DGCA suspended its flying licence. The banks are more at default than the flamboyant Mallya.
Banks have never seemed to understand the corporate business methods. RBI deputy governor has said, “There is a need for additional technical capabilities to undertake evaluation and restructuring needs”.
They have to know the business they are financing and not be afraid of stopping of incremental loans if something goes wrong. This requires day to day monitoring. The banks are rarely known to do it. It is also no secret that if some individual officials try it, they are reprimanded.
Willful default is a banking term. It has little legal backing. It needs to be made a criminal offence. At present, for civil offences no extradition move can be made.
The issue is not Mallya. He only symptomises an ailing system where crooks can get away with public money.
The regulator, RBI, has restricted powers and cannot act case to case. The debt recovery tribunals have slow judicial pace. The malaise is deeper. Much of it has to be tackled before a loan goes bad. An overall cleaning is needed. It requires a macro study and probe. The JPC can provide a macro picture and come out with the picture that will be in public domain. Sooner it is done it would better for the safety of public money and the economy lest it slides into another major Lehman type or SE Asia type crisis.
Ends
