Banks stare at a massive Rs 30,000 crore loan write-off: Why IL&FS is yet to meet its Vijay Mallya moment

A Moneycontrol report on Tuesday said that banks are staring at a distinct possibility of having to write off a massive amount owed by a single entity or group---Rs 30,000 crore to IL&FS and its byzantine maze of subsidiaries and associates. The IL&FS crisis has been brewing for the last couple of years, yet the villain of the piece has not been recognised.

Contrast this with the Kingfisher Airlines (KFA) banking scam of Rs 9,000 crore perpetrated by the liquor baron Vijay Mallya, the promoter of KFA. He was quickly identified as the villain of the piece and full force of the law brought on him including his extradition from the UK where he is a fugitive now.

The apparent reason why individual responsibility has not been fixed in case of IL&FS is it was promoted by a clutch of public sector insurance companies and banks and financial institutions with no body to be kicked and no soul to be damned. But if Mallya could be identified as the brain behind KFA owned substantially by United Breweries Holding Ltd (UBL) then there is no reason why the men behind the IL&FS fiasco cannot be identified and brought to book.

It is common knowledge that private sector is characterised by corruption and sleight of hand deals whereas the public sector is by sloth and inefficiency. The Life Insurance Corporation (LIC) owns 25.34 percent stake while State Bank o India (SBI) owns 6.42 percent in IL&FS. Orix Corporation of Japan is also one of the largest shareholders of IL&FS with 23.54 percent stake. Abu Dhabi Investment Authority, HDFC and Central Bank of India also hold 12.56 percent, 9.02 percent and 7.67 percent stake respectively.

Banks stare at a massive Rs 30,000 crore loan write-off: Why IL&FS is yet to meet its Vijay Mallya moment

Representational image. Reuters.

Promoted in the year 1987, it has been used as a handmaiden by bureaucrats and politicians to line their own pockets through SPVs for various road and other infrastructure projects skewed in favour of the joint venture partner with IL&FS bearing the brunt and getting the rough end of the stick. That this was indeed so is manifest from ex-bureaucrats finding a berth at the helm in most of the SPVs funded by IL&FS.

Strange as it might sound, the public hates corruption but is tolerant of sloth and inefficiency although the bottom line, as hinted by the above Financial Express story, is bureaucratic sloth hid something more sinister. In the event, to expect banks and financial institutions to gird their loins and brace for a massive Rs 30,000 crore hit stoically smacks of throwing in the towel without an offensive against the schemers and perpetrators of IL&FS scam.

Provident and pension funds too put in their money in IL&FS bonds enticed as much by heightened rates of interest as by the AAA rating awarded blithely by Ivy League credit rating agencies. Some 15 lakh employees who are members of these funds are having sleepless nights.

What has brought about this disquiet to the fore is the recent report submitted by Uday Kotak to NCLT that out of the mammoth Rs 91,000 crore debt piled up by the IL&FS group as much as Rs 65,000 crore belongs to the ‘red’ category meaning even secured creditors cannot be paid off. The urgency with which the Fugitive Economic Offences law proceeds against the assets of the perpetrators of the fugitives is not matched by either the Companies Act, 2013 or by the Insolvency and Bankruptcy Code (IBC).

In KFA scam, Vijay Mallya was its face and he stood out for everyone to see. IL&FS alas has turned out to be a faceless scam, as it were. But if it was a spoils system promoted by politicians and bureaucrats, it needs to be investigated and the guilty brought to book even if they turn out to be hundreds of individuals. It is very easy to ask banks to gear themselves for a haircut. IBC in its single-minded focus on quick recovery of dues even at the expense of huge sacrifices by banks is not suited to deal with loot and plundering responsible for the NPAs of banks. Fugitive law is all right for those fleeing the country but for those who stay put, there is no effective mechanism.

(The author is a senior columnist and tweets @smurlidharan)

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Updated Date: Feb 20, 2019 13:59:03 IST

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