The decision by the State Bank of India (SBI)-led consortium to reject high-flier Vijay Mallya's offer to repay Rs 4,000 crore in loans -- less than half of what he owes them - means banks will have to take a bigger hair-cut now.
Let's get this clear: there's no way on earth that Mallya will better his offer - if he does so now, it can only mean he has more in his wallet, but was not being truthful about it. The latest stand of bankers is also misleading. It gives you the impression that they are being tough and intend to recovery every penny from the liquor-baron. And is part of the script union finance minister, Arun Jaitley, read out a few weeks ago.
If Mallya sticks to his stand that he can't better his offer to banks, they will have to take a bigger haircut. And there's no way on earth they can touch Mallya's personal or other business interests if they have no lien at all over them.
Politically Correct
If bankers to Mallya had adopted such a tough position earlier when Kingfisher Airlines has started to nosedive, matters would not have come to such a pass. Simply put, bankers who were to act as air-traffic controllers allowed a less than air-worthy entity to fly around. It does not make Mallya honourable, but the handwringing that's on is for public consumption.
Let's take the evaluation of brand "Kingfisher". It's an established practice to find the "value" of a brand. But such an exercise is usually done when a merger and acquisition deal is on and a potential buyer wants to know what a brand is worth. When lenders do it to advance a loan against the brand post its hypothecation, the least they could have done was to find an exit route in case there's a default on it. Nobody bothered to do so.
The public outcry has led to a clamour for all defaulters being publicly named. That's because there's a mistaken impression that all non-performing assets (NPA) are a result of malfeasance. It's not the case. Again, the word "defaulter" is used casually - not servicing a loan makes you a defaulter for sure, but it's mistaken to mean there was "wilful" intent.
Reserve Bank of India (RBI) governor Raghuram Rajan was spot on when he said: "If someone defaults on their credit-card bill, would they like it if their names were made public?"
In any case, Banking Secrecy laws under the Reserve Bank of India Act debars lenders from giving out information on borrowers except to the central bank and too under a prescribed format.
In the case of Kingfisher, the stance adopted by bankers smacks of incompetence, but it's not a crime to be incompetent. Of course, if it's proved in the course of investigations that some of them also feathered their nests, then it's a different issue.
BW Reporters
Raghu Mohan is an award-winning senior journalist with 22 years of experience. He has worked for BW Businessworld since December 2006, and is currently its Deputy Editor. His area of expertise is banking – commercial, investment, and the regulatory. Previous stints include those at The Financial Express and Business India.
