Banking doling out huge amounts of loans to the rich and well-connected people without assessing their capacity to repay is definitely the root cause of the ongoing crisis in our banking sector. Vijay Mallya, the boss of the now defunct Kingfisher Airlines, who owes the banks a whopping Rs 9,000 crore, is good example of the reckless lending by Indian banks to persons who has enormous clout in the political firmament.
Kingfisher Airlines had been grappling with acute financial stress and controversies in the last few months before it wound up operations. The air carrier flew into deep trouble following frequent strikes by employees demanding wage hike, nonpayment of dues amounting to millions, and failure to attend the required commercial flight testing. The management had to face legal action in connection with all these issues.
The passengers raised doubts about the commitment and sincerity of the crew who have not been paid salaries for months. Kingfisher chairman Vijay Mallya, who appeared least bothered about the uncertain situation which put the lives of thousands of passengers at risk, is still a member of the government-appointed Consultative Committee for the Ministry of Civil Aviation and the Standing Committee on Commerce, a panel to advise the Ministry of Civil Aviation on the aviation policies. Mallya was elected to the body by virtue of his Rajya Sabha membership.
It is obvious that it would not be possible without strong political backing for a willful defaulter to be a member of an advisory council.
The flamboyant businessman had the power to dictate terms to the government to get even the Civil Aviation Director General sacked within 24 hours after the latter sought action from the government against the cash-strapped airlines.
Subsequently, the report submitted by his successor, a junior official, cited lack of evidence for the regulators to initiate action against Kingfisher. Soon, the government gifted him a post to live in a foreign country representing India.
During the crisis, Mallya had made a bailout request to the government, along the lines of the package offered to Air India. Initially, many in the Union Cabinet were in favour of such a move, but were forced to eat their words after the issue kicked up a storm.
After shutting down operations, the Bangalore-based industrialist, who also owns India's largest brewer United Breweries, earned crores of rupees by selling the airport slots allotted to Kingfisher in various foreign airports including the London’s Heathrow Airport to rival operators. Airport slot is a right granted by an airport owner which allows the slot holder to schedule a landing or departure during a specific time period. Even after making millions, he did not pay the pending salaries to the employees. The airlines used to brag that it recruited only those air-hostesses handpicked by Mallya. Unfortunately, the same air-hostesses were left to starve by the company.
The banks, mostly the nationalised ones, that were well aware of his high connections in the top echelon of India’s political circle, did not have to think twice to lend him huge sums of money only on a personal guarantee.
Now, the Enforcement Directorate, which is investigating into the financial irregularities, has sent notices not only to Mallya and Kingfisher officials, but also to the heads of the IDBI Bank, which is just one among the 17 banks that sanctioned huge amounts of loans to the liquor baron. It gives a clear indication that the recent developments are just a tip of the iceberg and the real situation in this regard may be more serious.
In an open letter to Mallya, the angry Kingfisher employees, who are still on the company’s payrolls, alleged that not a single politician came forward in support of their agitation. Though he was elected to the Rajya Sabha as an independent, Mallya had received support from the Congress, Janata Dal (Secular), and the BJP. So, according to them, the ongoing war of words in Parliament between the ruling party and the Opposition over the issue is merely an eyewash.
Mallya too had raised a serious question via his Twitter account. “News reports that I must declare my assets. Does that mean that banks did not know my assets or look at my Parliamentary disclosures?", he tweeted.
Mallya had declared assets worth Rs 615 crore in his Rajya Sabha affidavit in 2010. But even after that the banks lent him a whopping Rs 7,000 crore!
Even if the banks had taken note of the net worth showed by Mallya, it would not have helped them much, for as per existing laws, only the company is liable to meet its debt repayment obligations and the chief promoter is under no obligation and his private assets are safe and secure.
According to K. M. Abraham, a former board member of the Securities and Exchange Board of India (SEBI), people like Mallya continue to indulge in merrymaking despite defaulting in payment of over Rs 9,000 crore by exposing such loopholes in the system.
Another fun fact is that the affidavit Mallya filed for his second term in Rajya Sabha stated that he did not own any assets abroad!
A big-hearted host
Known for his extravagant and flashy lifestyle, Mallya was also a generous host. Top Bollywood personalities, prominent politicians and officials, and leading media persons were always present at the parties threw by him. Youngsters approached him seeking help to step into the glamour world of modelling, movies, and the fashion industry. Many of the models who featured on the Kingfisher calendar have made it big in Bollywood.
While taking a dig at the major media houses in the country via twitter, he reminded them of their ‘friendship’ in the past. “Let media bosses not forget help, favours, accommodation that I have provided over several years which are documented. Now lies to gain TRP?”, he tweeted soon after emerging online.
He further stated that he was not an absconder and that he's an international businessman who travels to and from the country frequently. Mallya went on to said that as a Member of Parliament, he respected "the law of the land" and would comply with it completely; but he was against a trial by media.
It is to be seen whether the MP who respects the law of the land returns to Indian and gracefully accepts the Enforcement Directorate’s notice before facing legal actions.
Mallya is just another big fish
There are many top industrialists and businessmen who have defaulted on loans worth crores of rupees lent by various public sector banks. According to a Reserve Bank data, around one third of the total outstanding loans was defaulted by just 30 account holders. The outstanding loan amount against the name of those come under the category of ‘willful defaulters’ is Rs 64,300 crore.
As per a data released in last September, there are 7,265 persons who defaulted after borrowing loans amounting to Rs 25 lakh or above. The outstanding loan amount is Rs 64,334 crore.
Until last March, the total bad debts or non-performing assets of the country’s public sector banks amounted to a whopping Rs 4 lakh crore. It accounts for around 7.2 per cent of the total lending.
RBI governor Raghuram Rajan had recently called for strong and concerted action from the bankers to chase the defaulters and make them pay up. He had also chided the banks that their complacency allowed the well-connected wrong-doers get away. The events unfolded in the last couple of days have proved that his words were prophetic.
If the RBI governor is forced to make public such sloppy practices, it is time for a reality check for our banking sector.
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