Economic Highlights
New Delhi, 11 March 2016
Mallya Just A Peg
JPC VITAL TO EXPOSE BANKS
By Shivaji Sarkar
Is it riches to rag story? No, it is just not one of the
biggest defaulters Vijay Mallya, who virtually received unsecured loans of Rs
9,000 from consortium of banks. He has left and 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! Indeed it’s certainly smart of Mallya.
But what were Bhattacharya and her bank doing all this while? She needs to
remember that she is paid a salary in crores of rupees to protect the deposits
of the poor people.
The banks are mere custodians of depositors’ money and they
need to guard it. A borrower, all banks are aware, is known 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 even then was considered 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 Reserve Bank of India put a
deadline of March 2017 for banks to clean up their balance sheets. The RBI’s
role as regulator also needs a relook. The moot question is: Are banks being
merged to cover pug marks? This has to be shelved.
The situation is the worst 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 past few years. It needs to look into the functioning
of the banks as well as the corporate books. Importantly, the Committee should
expose just not Mallya, but also other corporate defaulters who have been looting
bank funds apparently with the connivance of bank officers and even may be some
political leaders.
Remember, a small home or car loan defaulter is acted upon swiftly
by the banks and his assets are attached if he/she fails to pay three monthly
installments. How could IDBI bank then 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 indeed be 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 this clandestine 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, then that means taxpayers’ money is being used to bail out banks, which
have been looted by large borrowers. Unfortunately, the poor depositor is at a loss
at every step – his deposits are unsafe, he gets measly interest rates and the 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 and earning
tons every day has defaulted by Rs 95,000 crore since 2008. No action is known
to have been taken.
Another alarm bell is ringing 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, which is 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 serious
concern as it affects overall credit worthiness of the 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 such as 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 or turned a blind eye
to the corporate business methods. RBI deputy governor has stated: “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 incremental loans if something is not right or goes
wrong. This requires day-to-day
monitoring. Sadly, the banks are rarely known to do this. It is also no secret
that if some individual officials try it do what is necessary, they are
reprimanded.
Willful default is a banking term, which 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 today 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 it which will then be in public domain. Sooner
it is done, better it would be for the safety of public money and the economy
lest it slides into another major Lehman type or South East
Asia type crisis. ---INFA
(Copyright,
India News and Feature Alliance)
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