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Lessons unlearnt

After thumbing his nose at the Indian banking sector from his safe perch in London, liquor baron Vijay Mallya has received a rap on his knuckles from the UK High Court. Of course, the 13 bank team including the likes of State Bank, Punjab National Bank, Indian Overseas bank, IDBI Bank and United Bank of India have only managed to draw first blood. The real battle to get Mallya extradited from Britain to face charges of defrauding these banks of a combined Rs 9,000 crores is yet to reach peak. Nevertheless, it is heartening that the UK High Courtrecently stated that Mallya can be regarded as a “fugitive from justice”, and has significantly ruled that a verdict by Indian court against him can be legally enforced on his assets in England and Wales. However, it remains to be seen whether the UK High Court’s ruling will open the way for the aggrieved Indian banks enforce a Debt Recovery Tribunal’s order to seize Mallya’s assets anytime soon. This is because Mallya has been operating in the same manner in Britain as he had hitherto done in India. The ownership structure of his purported UK assets is reportedly highly opaque and complex, putting the investigators in a fix. In his court deposition, the liquor baron has claimed that he has been a non-resident Indian since 1988 and has an indefinite leave to remain (ILR) in England, where he has lived off and on since 1992. While the UK High Court judge has been skeptical of Mallya’s claim, it is a fact that he has been a notoriously slippery customer, as far as pinning him down on assets are concerned. With the Crown Prosecution Service (CPS), representing the Government of India, now waxing confident for establishing a prima facie case of fraud and money laundering against Mallya, all eyes are on how he fights his extradition from Britain to face the courts in India.
While Mallya is sure to wage a dour legal battle to stay on, it should not be forgotten how the brash tycoon and former Rajya Sabha Member had had his way in India in gaming the entire government and banking machinery with impunity. Considering his questionable track record, it is galling that he still succeeded in taking top bankers for a ride repeatedly, leaving in his wake serious questions about corruption in bank sector. Hardly any lessons seems to have been learned though, considering that diamond merchant Nirav Modi recently got away after cleaning up Rs 17,000 crore from PNB and other banks. Big time bank fraudsters like Mallya and Modi have led a charmed life in India, which is hardly surprising. The Union government recently revealed in Parliament the extent to which it has been treating willful bank defaulters with kid gloves. It came out in Rajya Sabha last month through a written reply by Minister of State for Finance Pratap Shukla that in a three-year period from 2014-15 to September 2017, public sector banks waived Rs 2.41 lakh crore total worth of loans to corporate bodies. According to the minister, these non-performing assets (NPAs) were written off in the interests of “tax benefit and capital optimisation,” with the borrowers of such waived loans continuing to be liable for repayment. The RBI in September last year had pegged the NPA burden of public sector banks at Rs 7.34 lakh crore (in comparison, the NPA burden of private banks stood at Rs 1.03 lakh crore); Union Finance Ministry data had revealed that top corporate entities accounted for around 77 percent of total gross NPAs of banks from domestic operations. Yet the government stoutly refused to name top corporate deaulters in Parliament, citing a provision under the RBI Act which bars disclosure of credit-related information given by banks.
Instead, the government has pursued the option of using the Insolvency and Bankruptcy Code (IBC) to resolve bad loan cases at National Company Law Tribunals (NCLTs) in time-bound manner, while also putting together a mega Rs 2.11 lakh crore plan to recapitalise state-run banks. Meanwhile, the power sector is adding to the woes of the banking system, primarily because many coal-based thermal plants have become duds. It was recently estimated in a Bank of America-Merrill Lynch report that stressed power assets may soon necessitate another massive bad loan waiver to the tune of Rs 2.5 lakh crores. Be as it may, the present Central government is appearing in poor light by taking its big business friendly approach to patently unjust lengths. Relatively small loan defaulters are publicly named and shamed, while big ticket defaulters are protected with deafening silence. This in turn encourages fraudsters like Vijay Mallya and Nirav Modi to clean up banks, leaving crores of small depositors to bear the brunt. Reportedly, around 7,000 such tycoons shifted their residence outside India last year, or changed their citizenship status. This they did to evade taxes or escape trial in court for economic offences. The Income-Tax authority is said to be mulling change of taxation rules to catch such ‘high net worth individuals (HNIs)’, particularly by raising wealth tax rates. Considering the tough and uncompromising stand taken by countries like the US against economic offenders, it is high time the powers-be in India drill some discipline and accountability into them. The rigors of financial discipline should not be solely for ordinary citizens to bear, to the exclusion of the big fish.   

About the author

Ankur Kalita