Last week, when liquor-baron, Vijay Mallya, resigned from the United Spirits Board as its Chairman with a fat $75 million severance package and revealed his intention to move to UK, State Bank of India (SBI) Chairman, Arundhati Bhattacharya told Firstpost.
“We are taking action as per law to protect our interests"’.
Bhattacharya, the first ever woman chief of the country’s largest bank, has indeed done what she said she will.
SBI has moved the Bangalore Debt Recovery Tribunal (DRT) seeking the arrest of Mallya, impounding of his passport for defaulting over Rs 7,000 crore loans lent to his grounded airline, Kingfisher. SBI has also claimed first right on the $75 million severance package Mallya received from USL.
Following this, on Thursday, Mallya moved the Delhi High Court against SBI . But the Court declined to hear Mallya’s plea.
SBI, which has close to Rs 2,000 crore exposure to Mallya, is the head of a consortium of 17 lenders to Mallya, most of which declared Kingfisher loans as NPA back in 2012. SBI and Punjab National Bank (PNB) also recently classified Kingfisher and Mallya as a wilful defaulter. A wilful defaulter wouldn’t be able to access funds from any other financial institutions or join any other companies for a specific period.
Even if Mallya is arrested, banks still might not be able to recover even a fraction of what is stuck at Kingfisher. The value of Kingfisher’s assets has deteriorated so much that banks have nothing much to recover. Also, the airline’s share is reduced to a trickle.
But, kudos to Bhattacharya for moving first to seek Mallya’s arrest and seek the attachment of his parting gift from USL. Once banks are able to take down Mallya, this will send a strong message to other crony promoters who have defrauded banks by not repaying thousands of crores of money that they too will have to fall in line sooner or later.
This is something Firstpost has strongly argued in a series of stories on Indian banks’ bad loan problem #NotEnough.
Mallya’s case is unique in the Indian banking industry in many ways. Arguably, in the history of Indian banks, there has not been an individual who managed to take some 17 banks for a ride for almost half a decade, challenging them publicly by throwing lavish parties and dragging lenders to court rooms and delay repayments on technical grounds.
Even RBI governor Raghuram Rajan too had publicly criticised Mallya when he said loan defaulters shouldn’t flaunt their wealth in public as this can send a wrong signal. “If you flaunt your birthday bashes even while owing the system a lot of money, it does seem to suggest to the public that you don't care. I think that is the wrong message to send,” Rajan said on the sidelines of the World Economic Forum.
Without doubt, Mallya has cleverly used the legal system to his advantage to delay the loan recovery by banks. Before SBI finally tagged Mallya as a wilful defaulter in November 2015, the liquor baron had managed to force Kolkata-based United Bank of India to reverse its decision (to tag Mallya as wilful defaulter) getting a favourable court verdict on technical ground. The court ruled in favour of Mallya citing that instead of having three members, the grievance redressal committee of the bank had four members.
Even though Mallya has lost his family silver in the battle against banks, the liquor baron still has his personal wealth treasure across countries and has influential friends in power centers who will help him walk free where he wishes to go. But, arresting him and forcing him to surrender his personal wealth is a must step, especially given that the current plight of Indian banking system is mostly on account of defaults from large corporate borrowers not retail defaulters.
While taking down Mallya, question should be asked to banks which extended loans to Mallya despite clear signs of risk in the airline’s balance sheet. Why, in the first place, were banks so enthusiastic to lend to Mallya? Mallya’s airline never made even a single quarterly profit in its seven-year-old life? What happened to the credit appraisal process and due diligence banks need to strictly follow in the Kingfisher case.
Banks were clearly generous to Mallya in extending loans and have equally clearly failed to monitor the end-use of money in the initial stage. The role of bankers involved in the credit appraisal process should be investigated and those violated the rules should be punished.
It’s a good sign that banking system, neck deep in bad debt (Rs 400,000 crore at last count), has finally woken up to take on the ‘rich and powerful’ . This is even more critical given that the RBI has set a March, 2017 deadline for banks to disclose all bad assets that will result in substantial capital burden on state exchequer (70 per cent of banking industry is controlled by government banks). After all, why should the taxpayer fund the bail out of large corporate loan defaulters?
An all out battle against wilful defaulters by the RBI, banks and government can end the season of daylight bank-robbery by crony promoters. Taking down Mallya is only the beginning.