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Big defaulters get away

Sentinel Digital DeskBy : Sentinel Digital Desk

  |  10 March 2016 12:00 AM GMT

With liquor baron Vijay Mallya reportedly fleeing the country, the spotlight is now directly upon how banks treat big loan defaulters with kid gloves and allow them to have their way. Questions are being raised about the government and Reserve Bank’s policy of not ming big defaulters, as also the long-drawn legal process which allows such defaulters to make a mockery of the debt recovery process. While issuing a notice to Mallya, owing Rs 9,000 crore (including interest) to a consortium of 17 banks, the Supreme Court on Wednesday learnt from the government that the controversial tycoon and Rajya Sabha MP from Kartaka has already left India, probably heading to Britain. The Attorney General informed the apex court that Mallya’s persol wealth is conservatively estimated at over Rs 7,000 crore, that his assets abroad are far in excess of the Rs 7,800 crore loan he took to fund Kingfisher, the high-flying airline which went bust in 2012. The bench posed some pointed questions as to how Mallya, who was already a defaulter and facing proceedings in court, could mage to secure even bigger loans. At this, the AG replied that the loans were advanced against the ‘brand value and logo’ of Kingfisher Airlines as well as its fleet of aircraft which were attached to a third party.

Be as it may, the bank consortium’s attempt to get Mallya’s passport frozen, foreign travel blocked and extract from him a disclosure in court about his total assets — has come too late in the day. Only last month, he had announced intention of moving to UK to be closer with his family, after resigning as chairman of United Spirits Ltd which he had sold to British liquor major Diageo three years back. As part of the deal, he was supposed to receive 75 million dollars (Rs 515 crore) as severance package. The State Bank of India, the lead lender in the bank consortium, had last week moved the Debt Recovery Tribul in Bangalore to get this payment stopped, claiming first right on it. The tribul set the next hearing for 28 March, but the wily Mallya may have beaten both the SBI and the tribul to the draw, with sections of media reporting that he may already have pocketed 40 million dollars of the Diageo windfall. Experts have frequently called for special fast-track courts with countrywide jurisdiction to handle such big bank NPA cases. As for the Enforcement Directorate (ED), it filed a money-laundering case against Mallya and Kingfisher Airlines on Monday last, on the basis of allegations that as much as Rs 4,000 crore of the bank loans may have been diverted to intertiol tax havens like Mauritius and Cayman Islands. How this case will proceed in the coming days is anybody’s guess.

CBI Director Anil Sinha had recently expressed dismay over the ‘laxity’ of lending banks and regulatory agencies in taking action against Mallya and senior Kingfisher officials. It was only in November last year that the SBI at last got around to tagging Mallya as a ‘willful defaulter’, following the lead of the United Bank of India in 2014. Mallya had the gall to write an open letter, complaining that he was being made the ‘poster boy’ of bank defaults, that banks in total have non-performing assets (NPAs) of Rs 11 lakh crore with other borrowers owing much more than Kingfisher. He even argued that the SBI authority was to blame because the bank knew about his company’s fincial position and yet lent to it! As for the media, Mallya had some words of advice — that it must not indulge in sensatiolism and be ‘hostage to TRPs’. All this bluff and bluster is typical of the way big defaulters take banks for a merry ride, use their battery of lawyers to block loan recovery process at the courts, and manipulate sections of the media to mislead public opinion. Delayed loan recovery in turn leads to degradation of assets, particularly if these get tangled in a lengthy court battle. Filly, banks may end up recovering only a minuscule fraction of the huge loans they advanced.

RBI Governor Raghuram Rajan, in the midst of a campaign to get banks clean up their balance sheets by coming clean on NPA burdens, told a Parliamentary standing committee recently of the need to ‘go after corrupt bank magements as well as corrupt promoters’. Thanks to corrupt bank magers twisting lending norms to favor big promoters, bank funds are not only being diverted, but stolen. Questions have also been asked about banks occasiolly ‘ming and shaming’ small defaulters with public notices, but maintaining a conspiratorial silence on corporate defaulters. As per RBI estimates, the top 30 loan defaulters currently account for one-third of the total gross NPAs of state-owned banks. But so far as ming big defaulters are concerned, even the RBI has come in for criticism at the Supreme Court. Citing banking secrecy, the RBI and commercial banks have been denying such information to the public as ‘information being held in a fiduciary capacity’. The apex court’s ruling now stands that such routine information cannot be denied under the Right to Information (RTI) Act.

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