Vijay Mallya: The King, Horses And Mules

Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall;
All the king's horses and all the king's men
Couldn't put Humpty together again.

On January 25, Reserve Bank of India (RBI) governor Raghuram Rajan told NDTV 24X7 in Davos, "If you flaunt your massive birthday bashes even while owing the system a lot of money, it does seem to the public that 'I don't care'… If you are in trouble, you should show that you care by cutting down your expenses and not flaunt more spending in public".

Now assume for a moment, Vijay Mallya (the original "acche din" poster-boy) had all along led his life in line with the strategic advisory of Mint Road's presiding deity on how folks with belly-up businesses are not to dance before the world's prying eyes. But had done so wildly in private. Well, as out of sight is out of mind, the "out of mind" (them, and them alone) might have swallowed hook, line and Single Malt that he does bother to repay the thousands of crores owed to banks. You can fault myopic Mallya for that.

Rajan's line of argument has been parroted before - you can't blow up millions on a marriage when there's a drought in the country. Now who's to decide what's the right amount even when all is apparently well with the world? Did all those who beat their bosoms over the extravagant opt for an Arya Samaj shaadi?

Both Niti Aayog member Bibek Debroy and Chief Economic Advisor Arvind Subramanian did not buy Rajan's view. Debroy held: "I think wealth creation is good for society and wealth creation is good for everyone. You make tonnes of money and you go and flaunt it. It's none of my business." Subramanian said: "We address owing the money problem, not flaunting... Flaunting, I agree with Bibek."

This writer's point is: defaulter or not, how you earn and spend your money is none of anybody's business (even if it's ill-gotten). Rajan's politically correct response has set the "default tone" in the outcry over Kingfisher; it will prove P.T. Barnum right all over again: "The bigger the humbug, the better people will like it."

So what's not humbug?

Off the record, bankers who opted not to touch Kingfisher's credit proposals say that it was the duty of those who jumped in to ascertain the collateral for the debt. In the airline business, when a company says it's "ordered" a certain number of aircraft, it does not mean all of it belongs to it - like in "I took a loan and bought a house".

It can be a "dry lease" - the lessor provides aircraft without insurance, crew, ground staff, supporting equipment and maintenance; a "wet lease" - the lessor provides it with crew, maintenance, and insurance. Or it is a "sale-and-lease back" - an airline which has bought the aircraft, sells it to a leasing company at market price and right away leases it back.

In the case of Kingfisher, it's a matter of detail that needs to be explored fully - the finer aspects of the structuring. As in if it was a "sale-and-lease-back" with Indian banks which could have attached the aircraft (if air-worthy) to recover part of the debt. Or did Kingfisher enter into deals with only banks (or non-banks) based overseas. All we know is that the Mumbai International Airport Ltd had sent legal notices to it to recover some Rs 53 crore; a few ground-handling vehicles were attached. In the case of its fleet, the majority are said to have been "leased", but had been cannibalised for spare parts. And largely went to the junk-yard. What it shows is that even at the credit appraisal stage, bankers to Kingfisher goofed badly. You can't blame Mallya for it.

Banking Goof-up
Now let's now look at the credit-appraisal hierarchy in state-run banks (the bulk of the sum is owed to them). The "credit note" is put up by "Scale-III" officers or senior managers. It then goes up to the Credit Appraisal Committee (CAC) which has a bank's chief executive, executive director, and general managers. It then moves to the board's sub-committee on credit which is broad-based - other than the bank's officials on its CAC, you have the presence of North Block, Mint Road, a chartered account and directors who represent workmen and officers. If Mallya got through this safety net, he should be complimented for it.

What's again lost in the din is that other than the Kolkata-based United Bank of India, the rest of the banks who lent to Kingfisher hardly moved a finger as the airline went belly up and defaulted on loans. As the largest lender to it, the State Bank of India (SBI) should have taken the lead. Rather the debt went under the Corporate Debt Restructuring (CDR) knife. Back then the rule was that CDR cases were not to be classified as non-performing. That's not the case now. Worse, loans were given against the goodwill of brand Kingfisher - the valuation of the same was done by SBI Caps, the investment banking arm of SBI. This even as brand value continued to erode.

Again, both North Block and Mint Road should explain what their officials on the boards of these banks were doing when repeated lines of credit were extended to Kingfisher even as its employees were not paid. It's all very well to posture that defaulters will not be spared. In the case of Mint Road, just how many its officials on the board of these banks objected to Kingfisher's credit? It's ironical that another set of officials from its supervisory department now hauls up these banks!

"Why don't they put Vijay Mallya behind bars just the way the Sahara chief was sent? He should be made to pay his dues and such people shouldn't be allowed to escape the rigours of law. After all, it is public money which they have to pay back. There are hundreds of employees whose past wages Mallya has to pay," Congress leader Manish Tewari was quoted by ANI. But look at RBI data: the bulk of dud-loans were created during UPA-II's regime. There was not a squeak from Tiwari's party when the airline's employees were not paid.

It's all very well to blame Mallya now. But it's not yet over. Ask union leaders; and they will tell you that banks are the culprits here (it's not to absolve the King of Good Times). Just about every hook that a lender uses to check a promoter was thrown away into the gutter. If finance minister, Arun Jaitely, really wants to get to the bottom of the bad-loan mess, all he has to do is to ask banks to submit the appraisal papers (across credits) and minutes of credit-meetings (who told what; who objected) at banks - especially the state-run - over the last few years. Let Mint Road conduct an enquiry and the findings be made public.