The flamboyant Vijay Mallya is in the news for all the wrong reasons; his company owes 17 banks just over nine thousand crore rupees. The big worry is the way these loans were dispersed. The case of IDBI is particularly worrisome because a nine hundred crore loan was approved despite the board of the bank warning against lending to an airline which had consistently reported losses. There are now several cases and the chances of banks recovering their money looks bleak because the assets pledged to the banks are far less in value than the money loaned. The case is particularly important because the banks who lent to Kingfisher are from the public sector. The investigators are now working on complicity of bank officials in facilitating these deals.
The Kingfisher case is just the tip of the iceberg when we look at the non performing assets the banks are straddled with. The RBI Governor has given banks time until 2017 to disclose their stressed and non performing assets. Several top companies have been declared wilful defaulters and their defaults have run over 50,000 crore rupees. According to CIBIL, there are over 5000 wilful defaulters in the country, companies who deliberately do not repay loans despite the ability to do so. This money is precious resource for a country like India and can single handedly fund some of the mega infrastructure projects in the country. The RBI on its part is aggressively pursuing ways in which these defaulters are made to pay up but it’s an uphill battle. There is a power nexus of officials across the spectrum that let this problem fester, how otherwise would this have grown from 6000 crore to 50,000 crore since 2002? A proper investigation will reveal the truth and expose many but it can only happen when the investigators are given a free hand.
It’s the aam admi who has been left disenchanted, a home loan or even a personal loan of a few thousand rupees requires a mile of paperwork. A missed EMI meets threats and intimidation from banks for the major rouge companies hide behind their powerful lawyers who seem to have an answer for everything. The anger against Vijay Mallya stems from this; while he lives life king size and throws mega parties, the company he leads is refusing to pay up. His former employees struggle, the companies he owes money to run from one court to another and banks try to figure out what to do with the useless assets they are left with.
If we look at the non performing assets of just the public sector banks, they run into a staggering three lakh crore rupees. The CBI director has recently said, ‘Something is indeed seriously wrong,’ pointing at the huge mess that would hit the growth of the country. He also went on to warn that a significant part of these defaults are wilful and fraudulent in nature. The CBI has now filed cases in the Kingfisher case, but what is surprising and shocking is that despite several requests, the banks in question did not file a complaint despite several requests from the CBI. The case was finally filed on their own initiative. This does point at complicity, hence the hesitation.
A dangerous storm is brewing in the non performing assets front. The government will have to go in for a major surgery soon. The Supreme Court has also recently asked for names of all companies that have defaulted on loans over 500 crore rupees. Hope the clean-up happens soon!
Karma Paljor is Business Editor, CNN IBN