Mallya just a peg JPC vital to expose banks

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 crore from consortium of banks. He has left quietly to the UK. It is the government banks 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.

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 JPC 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 to 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 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 utilised to recapitalise the malfunctioning banks. The customer has to pay higher charges and while getting lower interest rates for the banks mistakes.

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 corporates. 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 ‘gif’ 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.