Vijay Mallya’s brief arrest in London has given Indian bankers hope
The excitement that many showed on social media and on television after Vijay Mallya was arrested by the Scotland Yard in London on April 18 was doused after news of his subsequent bail came out.
Nevertheless, as the London court hears a case to extradite him to India on several charges ranging from money laundering to tax evasion to loan default, hopes are high that at the end of it all, he will be handed over to the Indian authorities.
Those who rejoice most, would be the bankers and Mallya’s ex-staff, whom he owes money. After all, Indian banks have alleged he owes them Rs 9,000 crore, interest included, which he raised from them to fund his airline, which subsequently grounded, much before he fled to London on March 2 last year.
On the other hand, he reportedly owes his 3,000-strong staff Rs 300 crore in unpaid dues over several months.
The real trouble for Mallya started in November, 2015, when the State Bank of India (SBI), the largest lender to Mallya who owed it Rs 1,600 crore, declared him and two of his group companies, the now defunct Kingfisher Airlines (KFA) and its holding company United Breweries Holdings, as wilful defaulters.
In March 2016, SBI was able to join hands with 16 other banks to appeal to the Karnataka High Court that the businessman be arrested and his passport impounded.
In a separate development, the Enforcement Directorate (ED) also registered a case of money laundering against Mallya, based on a CBI probe into a Rs 900-crore loan KFA took from IDBI Bank.
Surely, there would be a political reason for arresting him, but purely from a banker’s point of view, an arrest, extradition and possible punishment will set a big example for defaulters.
The general feeling is that punishment should be meted out to a few big defaulters who feel they can take the system for a ride. That will go a long way in preventing future defaults to a great extent.
At present, in most cases, it is the bankers who are at the receiving end, and not the industrialist. One of the major mistakes that banks have done is to fund Mallya’s dreams to fly, which seemed legitimate, but then continuing to fund him even after several consecutive years of losses, resulting in good money being thrown in after the bad.
Perhaps the one biggest factor that pulled down his business was Air Deccan, which he bought to gain a licence to fly international, as Indian rules allow only airlines with five years of domestic operations to fly abroad. Mallya had created a product which needed more money to sustain itself than it was generating, leading to accusations that he siphoned off huge funds from his companies into his airline business.
Auditors of Diageo, which took a controlling stake in Mallya’s United Spirit (USL) in 2014, reportedly found that Mallya had diverted Rs 7,200 crore of USL’s funds to the airline, which again was diverted elsewhere. Apart from this, he is facing a probe for allegedly siphoning off over Rs 1,300 crore from United Breweries, a group firm.
But the biggest accusation against him was the way in which he seemed to be squandering money and throwing lavish birthday parties at a time when he was unable to even pay salaries to his staff.
Banks were to blame too, since public sector banks were in a high lending mode as the economy boomed, disbursing loans to big projects, but in many cases without considering all the pros and cons of these businesses.
These banks neither had the manpower nor the inclination to adequately appraise such projects, resulting in several loans turning bad. Add to this a legal system, which while tough on retail borrowers, but seemed to allow large corporates go scot-free.
Now, the same bankers are hoping that the government make an example of the liquor tycoon through an arrest and possible jail, although they know very well there is little money that they can extract from his assets now. An auction of his Goa bungalow gave the SBI just Rs 73 crore.
The Indian banking system, straddled with non-performing assets of Rs 7 lakh crore, needs some real pepping up, and hope bringing defaulters to book would be a major step in preventing more such defaults in future.
(Courtesy of Mail Today.)
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