Just one bank has dared to label him as such
It speaks volumes for the diffidence and timidity of banks that the State Bank of India (SBI) is yet to declare Vijay Mallya, chairman of the bankrupt Kingfisher Airlines, a wilful defaulter. Last week, a much smaller lender, the United Bank of India (UBI), declared Kingfisher and Mallya a wilful defaulter for not repaying R400 crore after the Calcutta High Court dismissed an appeal by the company against the notice issued to it. Kingfisher owes banks around R7,000 crore and has been grounded since December 2012; even before that the company wasn’t servicing its loans and although the group’s other businesses were faring well, there was no attempt to pay off the loans. If only India’s bankers had been more assertive with errant borrowers, their balance sheets might have been in a better shape today. A story of too many carrots, and very little stick, their willingness to take haircuts and write-downs—this goes back to the time when IDBI and ICICI were financial institutions—has encouraged promoters to be lax about repayments, even behave with impunity. In Kingfisher’s case, the lenders needed to have accessed cash flows of United Breweries and United Spirits even as they restructured the airline’s debt; the worst move they made was to convert the dues into equity.
Restructuring loans is a legitimate banking practice the world over, but it is only in India that the norms were so lenient. The promoter didn’t even need to furnish a personal guarantee and very often didn’t even make the minimum sacrifice—the dice was always loaded against the bankers. While recommending revised rules for restructuring loans, the Mahapatra Committee noted that a significant portion of restructured standard assets turned into non-performing assets (NPAs) because they were weak to begin with, and the reason banks went ahead with the restructuring was because the quality of due-diligence was so poor; a recent media report highlighted how the restructuring for R14,000 crore of debt was not working out. It is perplexing how bankers can be so casual with their funds, not learning from the initial experiences. By now, they should surely have realised that once a restructured loan turned bad, it is impossible to abandon it and chances of recovering the money are slim because the value of the collateral depreciates so fast. Indeed, the Mahapatra Committee had observed that banks had often not even been able to recover what was rightfully theirs by way of the ‘right to recompense’, thanks to disputes on how the amount should be calculated. It is high time banks got tough; only when borrowers realise they can’t get away easily will repayment discipline return.