The rising pile of sticky assets on their balance sheets have begun to push India’s state-run bankers to go for the kill on wily and crony promoters.
This became evident when the country's largest lender, State Bank of India (SBI) on Tuesday took control of Kingfisher House, a prime property owned by Vijay Mallya’s Kingfisher Airlines in Mumbai, in a bid to recover at least part of the money the airline owes the bank.
SBI claimed the property, spread over 17,000 square feet and which houses some of Kingfisher's key offices, after securing a favorable ruling from the Chief Metropolitan Court in Mumbai.
Firstpost broke this story on 18 February.
Kingfisher owes over Rs 7,000 crore to a consortium of banks, including SBI. To be sure, the value of the Kingfisher House would constitute only a small fraction of Rs 2,000 crore the grounded airline owes SBI.
But what is important is the signal.
This is probably the first time in recent years that one public sector bank is taking such a strong step against a big, influential business house. Also noteworthy is the fact a government bank could attach one of the prime properties of a prominent business tycoon and a politician, braving any interference -- political or otherwise.
SBI’s action, in that sense, could encourage lenders to take on wily promoters and cronies, who owe several billions of rupees to banks and have delayed payments for years.
Indian banks are sitting on a bad debt pile that is close to Rs 3 lakh crore, a significant chunk of which is a result of loans given to mid-sized and large companies.
The number of wilful defaulters, or borrowers who wouldn’t pay back even if they have the capacity to do so, has been on the rise in the recent years, prompting banks to start acting tough. Typically, in such cases a wilful defaulter diverts bank money to fund other purposes.
According to an SBI official, the bank is currently taking steps to classify Mallya a willful defaulter. Even though Kolkata-based United Bank of India had tagged Kingfisher a wilful defaulter late last year, Mallya secured a stay from the Kolkata High Court on technical grounds.
Kingfisher is just one of many companies that have been categorised as wilful defaulters by other state-run banks. Others include Winsome Diamonds and Jewellery, Zoom Developers, Koutons Retail and Mumbai-based Tayal Group-promoted KSL & Industries.
Winsome Diamonds owes Rs 6,500 crore to a clutch of banks including Axis Bank, Canara Bank, Bank of India and Bank of Maharashtra. About Rs 900 crore is balance to PNB going by the information from the bank.
Zoom Developers, which owes about Rs 2,600 crore to banks, has an outstanding debt of Rs 410 crore to the Mumbai-branch of PNB, while Koutons owes Rs 88 crore. The Mumbai-based Tayal group, the former promoters of the erstwhile Bank of Rajasthan, which has interests in textile to real estate, sill needs to pay around Rs 2,500 crore to various banks.
The involvement of influential politicians and industrialists, as well as legal interventions have indeed contributed to the rise in bad loan levels of banks.
The recovery process often gets delayed for years and by the time banks manage to lay hands on the collateral, the value of the asset would have deteriorated sharply.
According to bankers, one reason why state-run bankers have turned more aggressive in taking strict action against the defaulters is a strong push from the Reserve Bank of India (RBI) for faster recovery of bad loans.
In January last year, the RBI came with a roadmap on early recognition of bad assets, which incentivised banks making efforts for quick recovery and penalized those that delayed action.
Late last year, RBI governor, Raghuram Rajan had come down heavily on bad borrowers, saying they needed to be seen as freeloaders rather than being celebrated as industry captains.
“We need a change in mindset, where the willful or non-cooperative defaulter is not lionized as a captain of industry, but justly chastised as a freeloader on the hardworking people of this country,” Rajan said while speaking at a function in Gujarat.
Over the last few years, India’s state-run lenders have steadily lost market share to rivals in the private sector due to mismanagement, careless lending and corruption. These banks are currently capital constrained, neck-deep in bad loans and lacks autonomy in operations.
To stay afloat, state-run banks must act tough on wilful defaulters. SBI’s ‘Kingfisher Act’ would set a precedent.
Updated Date: Feb 25, 2015 11:23:44 IST