When the Ministry of Finance, the apex organ of Indian fiscal policy, and Reserve Bank of India (RBI), the monetary founthead, start raising stability concerns about the quality of assets of public sector banks (PSB), it underlines an urgent need to review and restructure commercial banking in India.
Accordingly, the RBI is getting ready to initiate bankruptcy proceedings against 12 major defaulters identified by the RBI who account for more than 25 per cent of India’s non-performing assets (NPAs), even as it seeks to widen the scope of Prompt Corrective Action (PCA) within the public sector banking. Thus, the Central Bank of India, which reported a net loss of `2,439 crore in 2016-17, would be the fourth PSB coming under the PCA lens.
Meanwhile, a range of investigations have been launched by the Enforcement Directorate (ED) and the CBI. The agencies are conducting in-depth scrutiny into the affairs of Kingfisher Airlines (KFA) and its mentor Vijay Mallya, currently enjoying a safe haven in London. Till he left India, Mallya was deemed a prudent businessman. But it is now becoming quite evident that the failed airline materially and systemically subsisted on loans and borrowings from over 17 PSBs.
Given the historically ‘tragic’ run of what happened to British colonial administrators who returned to ‘secure’ London after their respective Indian tenures, Mallya should not feel that the safe haven, away from Indian law, would be that perennial.
It may be recalled that Robert Clive, while confronting charges of corruption, had committed suicide, and the well-heeled and connected Warren Hastings was subject to humiliation, and sustained impeachment proceedings at Westminster. Would then modern day escapee Mallya eventually fare any better? Given that obdurate British authorities have their own unique standards about admissible criminal evidence even in ‘proven’ major bank default cases, the biggest constituent of the Commonwealth of Nations itself seems to be cutting a sad picture in the British courts.
In such an important case of criminal profligacy, the RBI should intercede on behalf of the hard-pressed Indian investigators with its counterpart, the Bank of England, to provide credible banking evidence to authenticate Mallya’s long list of offences. To further bolster Indian police investigators seeking Mallya’s extradition, senior MEA and RBI officials should help lawyers representing India in presenting the case at the next hearing. Such a team would be able to read better the existential procedures immanent in securing a fail-safe extradition of Mallya, who religiously pays all his taxes and dues in the UK, but rarely displays that level of integrity when he borrows massively from the Indian PSBs.
According to belated results of investigations now surfacing, he concealed assets worth Rs 1,760 crore in India and put his personal properties outside India as personal guarantee for incremental loans, knowing well that these were beyond the pale of Indian authorities in any future enforced process of recovery.
Such exploitation of procedures by a perennial creditor by itself is a matter of concern. Mallya got loans exceeding Rs 9,000 crore from over 17 PSBs and not from private foreign banks because the PSBs had no information-sharing system in place. A foreign bank would have treated Mallya like any other loan applicant and subjected him to rigid due diligence procedures that would have possibly shaken him. He is endemically used to interfacing with and overawing docile yet well-mannered bankers from nearly 17 distinct Indian PSBs! It is clear under these circumstances that whatever surveillance system the RBI had over the PSBs was not effective.
It is difficult to imagine that a man, who surreptitiously secured monetary favours from Indian banks and became a member of the upper chamber of Indian Parliament, is now challenging the Indian State in a foreign court sans any fear. Mallya is well aware that the liberal British legal system offers him greater space for maneuvering.
A sudden spurt in the recovery suits filed in Indian PSBs against willful defaulter shows that India’s bad loan problem is much bigger than Vijay Mallya. According to Credit Information Bureau of India data, as of March this year, there were 8,215 cases pending in courts for willful defaults amounting to Rs 1 lakh crore. Most of these cases were filed by PSBs. In March 2014, the number of such cases was only 3,500.
There is no question that the banks are responsible for the predicament in which they find themselves. But the root cause is the political control wielded over PSBs. The overall optimality level in functioning of any apex national institution operating within a democratic frame of things is often difficult to determine. The recent turf war between the RBI and the finance ministry over interest rates shows that the political class is reluctant to loosen its grip over the banking system.
Mohan Das Menon
Former additional secretary, Cabinet Secretariat
mdmenonconsulting@gmail.com