Bad times for banking sector

As the Indian banks are grappling with bad debts and the country is baying for ‘defaulter’ Mallya’s blood, comes the news that leading online brands have been granted bank loans for operational expenses. 

Everybody seems to be at their eloquent best while baying for his blood. There are also many who have switched on the ‘silent’ button to avoid questions on how they were involved in granting huge loans on questionable grounds. Either way, the flavour of the season has remained the liquor baron-turned-failed industrialist, Vijay Mallya, once described as the ‘King of Good Times’ but who seem to have now fallen in bad times. He has, as he himself described, become the poster boy of the Indian banking industry’s non-performing assets (NPA’s) story or the bad loan crisis.

As questions were being raised just when the consortium of banks was seeking impounding of his passport, Mallya flew out of the country. Of course, he has very interestingly stated that he will return to his country that made him what he is, Vijay Mallya. When that will be is a different matter but his case has, unwittingly, brought the spotlight on the banks giving loans to corporate entities and others and how the recovery takes place. Two significant developments in the wake of the Mallya controversy raise quite a few questions on the system that is followed.

Mallya’s escapade (he prefers to call it a business trip) assumed significance because he had defaulted on payment of loans which, including interest, penalties etc, comes up to about Rs100bn (RO572mn approx). The amount, as mentioned earlier in these columns, forms only a small portion of the R1.1tn that is owed to several banks by willful defaulters as well as others, the non-willful defaulters. It was his lavish lifestyle, many believe, which attracted the spotlight on him. But, it was certainly not a lavish lifestyle that a farmer in a village in the southern state of Tamil Nadu followed.

The contrast between Mallya and Balan, the farmer, stands out because of several reasons. Balan owed a private bank Rs134,000 after he had paid up Rs438,000 of the loan he had taken to purchase a tractor. The private bank went to the court and got an order to seize the tractor. The court also permitted the bank to seek the help of the police to recover the asset of the farmer, the tractor. As soon as the bank and police officials arrive at the village, Balan jumped onto the driver’s seat and refused to let go of the tractor while promising to return the entire amount once he has completed harvesting his crop.

The police officials got rough with him, legally speaking assaulted him, before seizing the tractor. The video of this went viral and the National Human Rights Commission (NHRC) has taken it up suo moto to point out that use of force is violation of human rights. Balan’s experience is repeated in another village in the same state but M Alagar, also a farmer, takes a deadly step. He commits suicide unable to face the humiliation of his asset being taken away by the bank. The loan recovery process is similar except that there is none in the second instance to record a video or send it viral. The stories of Balan and Alagar on one side and Mallya on the other, fundamentally, point to the manner in which bad loans are recovered by banks.

It is not that banks did not recover a part of the loan from Mallya. One or two of them even declared him a willful defaulter much before the Governor of the country’s central bank, the Reserve Bank of India (RBI), Raghuram Rajan, ordered the cleaning up of the banks’ non-performing assets (NPA’s) or bad loans by March 2017. Some even recovered a part of the loan by selling some of the shares that Mallya had pledged. But, there was no complete recovery like the tractors of Balan and Alangar. The contrast, indeed, gets sharper with news coming in of one of the big private banks handing over a loan of R4.5bn to the biggest of e-commerce companies in the country. The loan, obviously, is to take care of the day to day operations of the e-commerce company which has shown tremendous growth to become a household name.

The fact that a loan has to be taken by the e-commerce company is indicative of private equity (PE) players not releasing funds for it to manage the discounts-based retail business. The PE players’ action also came in the backdrop of the Morgan Stanley reducing the value of its own small stake in the company which, in other words, meant that the valuation of the company came down to US$11mn from US$15.2mn. It is presumed that the bank would have collected enough collateral to deal with this company in the event of a default on loan. In fact, all eyes will remain glued on this e-commerce company because lower valuation is already impacting the fortunes of smaller companies in the same space or smaller online companies which, probably, have higher valuation but no assets.

So, the stories of Mallya, the two farmers and the e-commerce company raise more questions than answers. For how long will banks fund companies which are not profitable? Or, to put it the other way round, are banks going to be giving loans because of brand popularity or because the promoter was able to peddle influence? In short, it means that there is no standardised system in place to grant loans or recover them. More importantly, as long as banks do not look at the profitability of the venture, the economy is bound to be impacted. The beneficiaries could be those who can fly away. The loser will be the country’s economy.

The pants are on

The ideological parent of the ruling Bharatiya Janata party (BJP), the Rashtriya Swayamsevak Sangh (RSS) has decided to make a change. Instead of khaki shorts, its cadre will pull up brown trousers to go with the white shirt. It is true that the organisation has come a long way since 1940 when its uniform was khaki shorts with khaki shirts. Over the years, the only two changes effected were replacement of leather shoes with non-leather ones and the white shirt replacing the khaki shirt. This is only the third change in uniform in 90 years! And, the ostensible reason for the change has been that the organisation was respecting the sensibilities of the new generation which was coming in large numbers to its shakhas (Sanskrit for branch).

To quote its general secretary Suresh Bhayyaji:

“We always move with the times. We are not rigid. No organisation which is not flexible can progress.” But, at the same meeting where the decision to change the uniform was taken, was another which showed that the sartorial change would not bring about any ideological change. In formulating its approach to the rising demand by an economically and socially dominant community for an affirmation policy, the organisation preferred to reject it. It obviously did not recognise the fact that such demands are coming up from upper castes because of a different reason. That the young in those communities were feeling the impact of joblessness and it had to do more with the agrarian crisis rather than the benefits of reservation accruing to a socially discriminated section of society.

Its resolution on social harmony sought to remove ills like untouchability and also said that ‘for the smooth functioning of society, it is essential that all social and religious institutions steer the course based on our hoary ideals of life’. In the last couple of years, the one aspect that has stood out prominently is that the organisation has kept those very hoary ideals away. The ideals on which India has been built upon. The only rigidity that was not evident was when the organisation backed the current agitation of women demanding the right to worship in (some of the) temples.

Tailpiece

The war over discounts in the retail space has been rather noisy even though it has come from the virtual world. But, there is one man who has carried the battle for the brick and mortar sector quite valiantly. Kishore Bayani of the Future group has again taken the advertising route to tell the consumers that he can also offer better discounts on products which they can really feel before purchasing. One advertisement hoarding takes the e-commerce companies head on reads: ‘Flip the Cart, Snap the Deal and Amaz-off’!

[The views and opinions expressed in this column are solely those of the author and do not necessarily represent those of Muscat Daily or Apex Press & Publishing]

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