Of late there is a focus on loans given by public banks and financial institutions who are custodians of public money. After a legal battle and lots of effort, SBI has managed to declare Vijay Mallya a willful defaulter. The road to recovery of the money is going to be even harder and longer. The barge owners who took loans in the good days of the mining boom are basically asking that their loans be forgotten.
Some years back, we had approached SBI for an increase in our working capital, we have a no default track record. Usually SME’s have a low default record but have to comply with various rules and requirements for collateral security. SBI was reluctant to loan the money, what if we defaulted? At the same time 500 crores was disbursed to Kingfisher Airlines who had already begun defaulting. When asked, the manager said that Kingfisher was a big brand. Now, SBI must be wishing one can eat that brand because only then can they sell it and recover not 500 crores but 7000 crores plus interest. Normally banks want collateral security in addition to the security of the asset financed. For Kingfisher Airlines the rules were different. For 7000 crores they are scraping the bottom of the barrel by selling a house in Goa or an office in Mumbai. The consortium of banks continued to lend despite the fact that the balance sheet showed clearly that the money was being diverted. The bank nominees on the board were happy to sit silently next to the king of good times.
It beats imagination that Vijay Mallya had the audacity to approach the courts to prevent him from being declared a willful defaulter. Today, it is only because of the media that we are clued in; earlier many big business houses simply refused to pay, approached the now near defunct BIFR and got away scot free to start another company and swindle the banking system further. Since the bankers are custodians of public money should they not be made accountable? Nothing happens. Now with the CBI stepping in to investigate a fraudulent loan, it has made Mallya say that he wants to pay back. Jail is scary.
Surely the bank nominees should be held accountable for not raising their voice in the board room and sending signals to their operational departments that further loans be stopped when they first saw the balance sheet. Loans are renewed every year, who were the sanctioning authorities who over looked basic rules when renewing the limits. When studying at AIM, a banker class mate was called back to Malaysia, he had to face a probe in a case of a bad loan. In that case, the Chairman went to jail. The reason, my classmate had made a file note that showed the Chairman had called him and asked him to overlook the glaring discrepancy. Surely, the operational managers would have succumbed to such pressures from higher ups. This is possible because while the banks are going after Mallya, they are making no effort to pin responsibility on their employees.
In Goa, EDC and some Cooperative banks are making heavy weather because of the loans given to the barge industry. Today, it is the turn of barge owners who are looking for some relief. They have their reasons for not being able to repay their loans? “No business” is surely a genuine reason; everyone knows what the mining situation is in Goa. However, is that a good enough reason for wanting concessions? There are many businesses that face this situation; a black and white TV maker will have a good case to also ask that his loans be forgotten. What about the fact that there should have been a business case for taking the loan in the first place. Were they not aware of the illegal mining, were they not aware of the excess mining, would these factors not been enough to caution them when investing in new barges? When the barge industry was booming, did the barge owners ask the banks to take extra interest? Prepay the loans? If yes then it is fair to ask for a waiver. The financial institutions usually have guidelines on how much exposure they can have with a particular industry, obviously this was flouted and one can only guess that political pressure would be behind the same. Till today no accountability is called for as no individual has lost money, it is public money.
The above are examples of utter disregard that custodians have for public money. This is because there is no accountability. Can you imagine the lower interest rates that would be applicable if banks did not have to write off such huge avoidable bad debts? Writing off loans is only ensuring that even those who have intentions of paying are encouraged to consider defaulting. It is high time that banks and financial institutions act against their officials who have flouted loan guidelines and have caused a loss to the institution and public at large. We must also have laws which do not allow those who default to continue their lifestyle while the institutions beg. Till that happens, institutions will continue to face defaults and public money will be wasted.
Blaise Costabir is an alumnus of the Asian Institute of Management and a first generation entrepreneur
