Banker & Borrowers’ Nexus Resulting Into High Rate of Non-Performing Assets in India
After the multi-agency probe launched against Vijay Mallya in various loan-default cases, the liquor barron left
India for London. The government has approached the British authorities asking them to send back Mallya to India to face
the law here. The CBI has alleged that about Rs 260 crore out of a loan of Rs 900 crore was diverted by Kingfisher Air,
while Rs 263 crore was used to pay salaries, tax deducted at source, income tax and loan installments. It seeks to make out a
case of "omissions and commissions" caused by the bank officials including ex-IDBI Bank chairman Yogesh Agarwal and
eight others. While people at large feels that the guilty must be suitably punished, a section of the bankers and experts feel
that Resolution of bad debts, on the books of public sector banks, could get delayed following the CBI's arrest of TOP IDBI
officials for sanctioning loans that went bad after a restructuring programme. Most public sector bankers feel that
commercial decision-making would get hit because of the CBI action. Not just loan resolution but there might be an impact
on PSUs' sanctioning of new loans as well. Now lenders would be extremely cautious on new proposals. Moreover, this
would be very untimely as credit growth is at its lowest in decades. At the same time bad loans are at an all-time high, and
need to be resolved in order to free up bank balance sheets for lending. CBI sources revealed that RBI guidelines were
ignored and the loan was granted to Mr Mallya in three tranches, despite Kingfisher's weak financial position (Negative Networth)
and low credit rating.
Keywords - Bad Loan, NPAs, Negative Net-worth, Lower Credit Ratings, default, RBI, Bankers, Bending of rules.