The Big Picture – Vijay Mallya Affair: Where Does The Larger Malaise Lie?
The saga of Vijay Malya goes on, the person who on record has defaulted nearly 9000 crores of public money has left to London. Mean while a consortium of banks led by SBI is now trying for his comeback and face law. While the problems of NPA over years have grown exponentially the question of how to recover them or just write those off has become a matter of debate. The issue of corporate debate restructuring, Criteria for lending, who’s responsible when things like this happen, are some of the other issues in this debate.
How all outstanding issues can be addressed?
First, Banks should stop issuing loans before they do due diligence of all the collaterals involved. Because in recent times banks have started issuing loans without due diligence of the collaterals which in later date puts the banks at risk. This should stop!
Secondly, the issue of corporate governance should be addressed properly. Bank management needs to be trained sensibly for issues relating to lending such huge amount of money. An effective bank management committee should be set up to determine the feasibility of lending such loans. And should be held liable if they function inefficiently.
Thirdly the issue of corporate debt restructuring. Banks need to be engaged with firms after giving loans and guide them during tough times like these. Also Speedy judicial resolution of cases involving large-ticket bad loans is critical for banks to recover their dues. Many a times, after long years of litigation, the sharp erosion in the value of underlying asset leaves nothing much for the lender to recover.
Fourth, Measures such as bankruptcy law and strict action on wilful defaulters may aid in lowering NPAs. But, despite the promise of doing necessary steps in power and other stressed sectors, nothing has happened in the one and a half years
Fifth reduce the political clout while making banking decisions. This is one the serious problem that needs to be addressed out rightly. Banks should be left to function professionally without due interference while discharging their duties.
Sixth, banks should learn from private sector experiences in dealing such cases. It is also crucial for the government to give a serious thought to privatisation of government banks. So far, this government has shown an aversion to the privatisation of banks. It should learn from the experience of the private sector banks and show the guts to moot radical reforms in the banking sector by privatising state-run banks.