Should banks take Vijay Mallya’s latest offer for repayment? Lenders are caught between a rock and a hard place

The double standard that the Indian banks exhibit to a defaulting retail borrower and a large corporate borrower are well known. If payments are overdue, the banks will waste no time to rush to the doorstep of a home/auto loan borrower, harass him/her in front of family members and even go to the extent of naming and shaming that person in public. But, the story is different for the moneybags. Defaulting big borrowers tend to get a lighter treatment. Such borrowers also have the money power and legal backup to take the banks to the court and fight for years, often leaving the lenders at the receiving end. [caption id=“attachment_6028671” align=“alignleft” width=“380”] File photo of Vijay Mallya. PTI[/caption] In this backdrop, Vjay Mallya case is a good case study. Banks haven’t been able to recover much money even after three years of Mallya boarding his flight to the UK after allegedly defrauding the lenders to the tune of Rs 9,000 crore. Throughout the legal battle, Mallya has had an upper hand over the banks in the case. Now, after a series of court hearings, Mallya has managed to get a favourable ruling from the UK High Court which has allowed him to appeal against the extradition order indicating that the court has found some merit in Mallya’s arguments. After this ruling, Mallya has taken to Twitter to repeat his offer for repayment to banks. “Despite the good court result for me today, I once again repeat my offer to pay back the banks that lent money to Kingfisher Airlines in full. Please take the money. With the balance, I also want to pay employees and other creditors and move on in life,” Mallya tweeted.

Despite the good Court result for me today, I once again repeat my offer to pay back the Banks that lent money to Kingfisher Airlines in full. Please take the money. With the balance, I also want to pay employees and other creditors and move on in life.

— Vijay Mallya (@TheVijayMallya) July 2, 2019

Will banks be able to take this offer? Not really. One problem is the difference in the claims and the other is the nature of this case. Mallya has consistently disputed the amount that he owes to the banks. The banks have been demanding Rs 9,000 crore with the accumulated interest amount while Mallya has offered to pay only the principal amount—around Rs 6,000 crore. Second, if the banks accept Mallya’s one-time settlement offer, that will set a bad precedent in the cases involving other corporate defaulters. Many large defaulters are currently dragged to the National Company Law Tribunal (NCLT) and Insolvency and Bankruptcy Code (IBC) proceedings are underway against them. Besides this, questions will arise on the logic of banks taking a huge hit on the outstanding amount (if they agree to Mallya’s argument). By this logic, an individual borrower who had defaulted on a retail loan and had been absconding, say for three years, can appear without bothering about any legal action. He can offer to repay just what he borrowed and not what he actually owed to the bank. Will the banks agree to forfeit the interest amount? Finally, Mallya’s case is not a typical case of loan failure. The liquor king is facing investigation for serious charges of alleged financial irregularities by the Central Bureau of Investigation (CBI) and Enforcement Directorate (ED). In one of the interviews to Firstpost, a former SBI banker had said that banks committed a blunder by not accepting Mallya’s earlier offer for principal repayment. In fact, that is easier said than done. Banks have landed between a rock and a hard place, wherein they cannot accept the Mallya offer—even the principal amount. If they don’t accept the offer, banks’ money is as good as gone. Either way, lenders are losing the game.