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RBI needs to limit open access of private borrowers to public sector banks

These are perhaps early days to declare heavily indebted Vijay Mallya innocent or guilty for alleged financial malpractices.

Published: 04th February 2017 10:00 PM  |   Last Updated: 04th February 2017 09:11 AM   |  A+A-

These are perhaps early days to declare heavily indebted Vijay Mallya innocent or guilty for alleged financial malpractices. But his ongoing prevarications and delay over getting back to India from London to face a fair trial on the ground that he has no passport seem quite inexplicable. Mallya can easily acquire a one-way emergency document to return to India if he so chooses. The Indian High Commission in London can deliver that document within an hour upon an application from the itinerant multimillionaire. 

Probably, Mallya’s mega-multi-crores-plus non-performing assets (NPA), which expose the fragile and imprudent Indian banking practices, make return to homeland a worrisome prospect for the hitherto “king of good times”. The endless chain of loans extended by a number of nationalised banks “without due and composite diligence” queer the pitch for the Rajya Sabha MP, who travelled to the UK on a diplomatic passport although he was being quietly investigated by enforcement agencies. The Enforcement Directorate (ED), currently investigating the consortium of banks led by the State Bank of India, is of the view that Mallya was exempted from requisite due diligence processes. Why the watchdog of national banking, Reserve Bank of India (RBI), did not intervene in real time to stem the rot?

The banking scandals in the wake of the Mallya-engendered crises do in effect distort national economic currents and possibly impact upon the entire gamut of banking and financial exchanges. His continued safe harbour in London could put seamless pressures on Indo-British relations if London remains obstinate and does not respond positively to requests from Delhi on the Mallya issue. However, if Lalit Modi’s case is any indication, expeditious response from the British authorities cannot be taken for granted. From a political perspective, Britain spearheads the Commonwealth of Nations and needs to be more receptive to Indian concerns lest the validity of that cumulus itself peters out in times ahead.   
It is indeed high time such incredulous challenges to India’s monetary and financial regulations were met on a priority basis. Registration of criminal charges against Mallya and bank officials, who ultimately cleared the loans to the stressed debtor, could be the first step. But this alone would not be enough to ensure speedy justice. Ideally, Mallya’s interrogation should have preceded the arrests and prosecution of the Indian bank officials responsible for clearing these loans. If any banker has aided and abetted Mallya’s proven crimes, action should be taken against him or her. But Mallya must be brought to India for trial as a necessary precondition for this.

Following the banks’ failure to retrieve money from Vijay Mallya, the Central Bureau of Investigation (CBI) has now stepped in. According to the filed chargesheet, the Rs 900 crore owed by Mallya to the Indian banks was split into two—Rs 260 crore and Rs 263 crore—for Kingfisher Airlines and to pay off the employees’ salaries.

Although CBI officials had stepped in earlier for an extradition process, their appeal was refused by the UK as they failed to produce a legal chargesheet against Mallya. The CBI thus filed a chargesheet earlier this week seeking Mallya’s extradition. Post this, the court is also said to issue a non-bailable warrant against him.

While it remains to be seen how effective such steps would be in ensuring speedier extradition of Mallya, it is time that the RBI begins to intervene in real time when and where loaning liberties, within the frame of Indian PSU banks, tend to get so fragrantly exploited and violated as evidence now suggests. The RBI urgently needs to review its regulatory mandate afresh to avert any replay of such activities that undermine its critical financial and monetary regime.

Towards better control over monetary regime, the RBI needs to limit open access of private borrowers to public sector banks. The Vijay Mallya group had unconditional access to 17 such banks dealing mostly with ‘middle class’ depositors at varying points of time. The group reportedly has NPAs in majority of these banks, highlighting the widespread nature of non-adherence to any in-depth verification and due diligence programme.

Secondly, the RBI must ensure that existential banking confidentiality norms are not exploited by any business group or individual to cheat the system. The results of inspection by the RBI monitors of PSU banks should be made public in a prudent and limited manner, especially where NPAs become the rule rather than the exception.

Thirdly, the RBI needs to invoke a confidential software strategy for PSU banks that eventually leads to issuance of high-visibility Business Borrower Identity Cards to stakeholders of big businesses so that overall viability of banking profiles can be constantly monitored. Imposition of these checks and balances are imperative in short run itself.  

mdmenonconsulting@gmail.com

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