BAND, BAJA AND TAMASHA OF INDIAN BANKS AND NPAs

By Ruma Dubey

Indians are famous world over for splurging on lavish weddings. But this marriage of investment banker Gulraj Behl and Shristi Mittal, the 26-year old daughter of Pramod Mittal at Barcelona, is shameful to say the least! The wedding party tab – Rs.505 crore or a mind boggling 60 million Euros. For ordinary people like you and me, it is difficult to get our minds around this figure and then we would be left wondering how and what did Mittal need so much money for?

This is so distasteful; another case of where foreigners, will look down upon Indians with disdain. Firstly, the wedding was a multi venue event; there was a virtual curfew, roadblocks around Barcelona. Most of the famous, historic tourist spots were shut down for visitors – the first time in the country’s history.  If you were a tourist with one day of your life in Barcelona, on that particular day, bad luck! You would have been left twiddling your thumb in the hotel room.

But what hurts the most is that Pramod Mittal is a defaulter in India. Before his company, Ispat Profiles was taken over by JSW Steel, till end of FY10, the company owed Rs.7200 crore to 15 banks, it overdues were over Rs.400 crore and needless to say, it was sitting on a huge loss. But in 2010, the IT department raided the company and its promoters and lenders were staring at a Rs.10,000 crore bad loan only on account of this company by end of March 2011. Things got so bad, Ispat was not paying salaries, not clearing electricity bills and factories were shut down, plant and machinery was rusting away. While workers suffered to get a decent meal on their table, there was no change in the lifestyle of Mittals – cars, big homes in foreign land, helicopters and helipads and of course, huge loans. For over 10 years, banks knowing fully well that Pramod Mittal’s company was defaulting, gave him one loan after the other – in fact in 2010, when defaulting by Ispat was at its peak, SBI sanctioned fresh loan to the tune of Rs.130 crore, of which it adjusted Rs.30 crore as payment towards previous loan. Thus by paying off previous loan, SBI itself played tricks to avoid classification of Ispat’s loan as bad and went ahead and gave some more. The company has had two CDRs, which itself was illegal because as per RBI, second CDR is not allowed, unless there is a change in management.  So banks kept on lending to Ispat while the promoters continued to default and spent all the money on a lavish lifestyle, caring two hoots for the rules and laws.  

Pramod Mittal truly did not care about these defaults as in 2011, while his company wanted a third CDR, he got his daughter wedded at a lavish ceremony in Turkey, in a palace at Istanbul!

This sounds so familiar – Pramod Mittal and Vijay Mallya; both major defaulters and both leading a shamelessly lavish lifestyle. And of course, banks are hand in glove, encouraging growth of NPAs.  The most recent case is of S Kumar’s owning Rs.3000 crore to various banks. Thus it came as no surprise when Mr.Chidambaram recently said that the gross NPAs amount of the top 30 accounts of PSBs stood at Rs 72,174 crore, while for all banks it was Rs 91,667 crore as on September. In the case of nationalised banks, the top 30 defaulters contributed 43.8% to gross NPA, with Rs 55,663 crore.

UCO Bank took a bold step and had published the picture of S Kumar’s Kasliwal in leading newspapers as a defaulter. Others were to follow suit but no other banks showed the guts to do so.

So why do we have this hypocrisy in banking? While a small individual, for a smaller loan, is punished hard and long, the bigger fraudsters, are not only allowed to default, but they are granted more loans despite a pathetic credit history. Forget arresting, their personal properties are not ever attached. And we cannot know the names of the defaulters because RBI has refused to divulge the names of the defaulters against whom no suits have been filed, citing secrecy clauses. And these corporate honchos have today burdened the entire banking system and made healthy banks into debt holes. Aren’t they economic terrorists’?

Bad loans cannot be blamed entirely on high interest rates and lower economic growth. Banks are to be blamed because when it comes to big companies, they have no verification process of end use of the funds, poor assessment and a meaningless recovery process. Banks, as per the rule book, can get a representation on the Board of the borrower firm but how many banks have actually exercised that rule?

This secrecy clause, protecting the names of defaulters should be first done away with. Transparency begins right from there. Yes, the list of names would include those of highly connected people, politicians. And that is the reason why we have this secrecy.

Can me and you, if we owe money to banks, ever have the gumption to host such lavish parties or weddings? And this is the reason why Pramod Mittal’s lavish spend for the wedding is a national disgrace, a tight slap on the face of India’s banking system and corporate governance.