The arrest of the fugitive and high-profile Indian businessman, Vijay Mallya, in London on Tuesday by Scotland Yard on an extradition warrant following a request from Indian authorities is an important signal. Failure to repay loans to banks could be costly for promoters and businessmen, it says. Mallya, who has cases against him ranging from defrauding local banks, defaulting on loans adding up to nearly Rs 9,000 crore besides charges of money laundering, evasion of service tax and other financial irregularities, has been granted bail.
The government’s determination to go after economic offenders like Mallya holds out the promise that from now on defaulters will not be spared, regardless of their so-called status in society. Allowing the big and mighty to go scot-free obviously makes it difficult to argue against populist loan waiver schemes. At the same time, however, pushing for the prosecution of high-profile individuals amid media glare only makes for optics and has only symbolic value beyond a point.
For, the fact is, the arrest marks only the first step in what could well be a prolonged battle to get the liquor baron to face trial back home. It may be relevant here to recall the country’s track record in securing extraditions in cases such as that of former IPL Chairman, Lalit Modi, music composer Nadeem who is wanted in the murder of music baron, Gulshan Kumar, and the navy war room leak suspect Ravi Shankaran.
Meanwhile, the cost to Indian banks and the economy in terms of the failure to resolve the huge pile of bad loans — brought about, also, by irrational exuberance and infirmities in project evaluation and lending — has indeed been high. Given this backdrop and the slowdown, banks have been treading cautiously since 2014 on disbursing loans. This is reflected in the fact that in the fiscal year that just ended, FY17, Indian lenders grew their loan book by just 5.1 per cent — a 60-year low despite the slide in interest rates by over 250 basis points during this period.
What we need, ultimately, are strong bankruptcy laws and speedier resolution processes. There has to be an automatic market-based mechanism for lenders to initiate recovery proceedings against corporate defaulters through seizure and auctioning of assets.This will also do away with the possibility of governments “picking and choosing” who they go after and who they spare. Insulating Indian banks from government influence on lending decisions will, however, remain a challenge as long as the government continues to be a dominant shareholder. Addressing these issues will be the key to restoring loan growth — critical once the economy rebounds.
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