Sunday, May 24, 2015

Banks Are Helpless In Recovery Of Loan From Defaulters

United Bank Says Lost Hope to Recover Money From Kingfisher?---NDTV 
( Read my Observation below )

State-owned United Bank of India has become the first of the 17 lenders to publicly admit that it no longer expects to recover its dues from the beleaguered Kingfisher Airlines.
Interestingly, the Kolkata-based lender was the first bank to attempt to get Vijay Mallya, the chairman of Kingfisher Airlines, tagged as a wilful defaulter.

Mr Mallya and UB Group, however, challenged this tag in the court.

The lenders have so far been able to recover just about Rs 1,000 crore from Kingfisher Airlines out of their over Rs 7,500 crore exposure (excluding penal interest), since they recalled the loan in February 2013, by selling pledged shares in group companies.

"Now, nothing is happening on the Kingfisher account and we are not getting any amount. We may ultimately get a few more crores by selling that building (Kingfisher House in Mumbai) and other collaterals," United Bank of India managing director and CEO P Srinivas told PTI.

"But when you look at the total loan amount, what we may ultimately recover is just equivalent to interest component. In last two years, we lost interest payment and we may be able to recover that much and the principal amount we may not," he said.

The bank had extended Rs 400 crore in a consortium lending when Kingfisher Airlines was still flying. The airline was grounded in October 2012.

The airline, owned by flamboyant Vijay Mallya, owes Rs 6,500 crore now (after around Rs 1,000 crore recovery) to a 17-lender consortium led by State Bank of India, which has an exposure of Rs 1,600 crore to the grounded airline.

Other banks that have exposure to the airline include Punjab National Bank and IDBI Bank (Rs 800 crore each), Bank of India (Rs 650 crore), Bank of Baroda (Rs 550 crore), Central Bank of India (Rs 410 crore).

Besides, UCO Bank has to recover Rs 320 crore, Corporation Bank (Rs 310 crore), State Bank of Mysore, (Rs 150 crore), Indian Overseas Bank (Rs 140 crore), Federal Bank (Rs 90 crore), Punjab & Sind Bank (Rs 60 crore) and Axis Bank (Rs 50 crore).

This February, SBI had taken over the possession of the airline's prime property Kingfisher House, near the city airport, after a protracted court battle.
Over 17,000 sqft-property at Vile Parle near the domestic terminal is valued at around Rs 100 crore.

When the airline was flying smoothly, it had its loans restructured twice in three years, the latest being in November 2011.

The problems of the lenders get further confounded from the fact that they have practically got nothing substantial in collaterals.
While the company pledged the Brand Kingfisher, valued at Rs 4,000 crore then, as collateral, the other collaterals include the Kingfisher Villa in Goa valued at around Rs 30 crore and the shares of UB group companies.

It could be noted that last September, United Bank had become the first lender to declare Kingfisher Airlines, Mr Mallya and three other directors as wilful defaulters.
The three other directors were Subhash R Gupte, Ravi Nedungadi and Anil Kumar Ganguly.

However, later in December a three-judge bench of the Calcutta High Court set aside the single-bench decision that allowed United Bank to tag them as wilful defaulters, on technical grounds.

SBI, PNB, and IDBI Bank had also declared them as wilful defaulters but have been challenged in various high courts by the company.

The airline hasn't flown since October 2012 and had accumulated losses of Rs 16,023 crore, while its networth fell to a negative Rs 12,919 crore at end of March 2013.
Launched in May 2005 Kingfisher Airlines never made any profit.

MY comment: 

United Bank has almost failed to recover loan from King Fisher Vijya Mallya . It is not only United Bank , but largest bank like State Bank of India has almost failed to recover any amount from the King. Not only this 17 banks altogether gave Rs.7500 crore to the King and they are  now almost helpless. RBI and Ministry of Finance has applied all their brain and all their energy but failed to help these lenders. They all could recover hardly Rs.1000 crore and still now there is unrecovered amount of Rs.6500 crore. Entirre legal course of action has proved futile exercise. Why? 

This is pathetic position of not only banks but also that of entire legal system and entire administrative machinery including the government. This is not simply a question of loss of  money loaned to a company named Kingfisher. This is the story behind majority of  bad  loans and majority of bank  defaults. Banks depends on mercy of loan takers and on mercy of judicial system . There are thousands of such cases of bank loan defaults where banks are unable to recover any amount from defaulters. But none of top officials are booked to task. Ultimately banks think it wise to write off the loan in the name of cleaning balance sheet.

It is to be kept in mind that loan of Rs.100 crore and above is not sanctioned by mid level or senior level officers of bank. Such high value of loans are sanctioned by Managing Committees comprising of bank board members, RBI officials and representatives from Ministry of Finance.

Are they not accountable and punishable as junior and midlevel officers of banks are held responsible and punished for defaults of a few lac of rupees?

Exercise of fixing responsibilities in high value loan defaults is done only to compete a formality and without any seriousness attached to it. This is why noe of top officials of banks or none of politicians and none of RBI officials are punished for their evil work.

However, when a clerk of a bank cause loss of Rs. 7500 by way of fraud or by way of wrong payment , he may be punished . If a loan of Rs. 500000 goes bad, junior officer of bank may be punished for wrong lending and for failing to monitor the account of loanee in effective way to curb account slipping to bad category. Hundreds of questions are asked to branch level officials by top officials when a small loan goes bad in a branch.

But  if a loan of Rs.7500 crore goes bad and becomes irrecoverable, none is accountable, none is punished and none is asked to explain after all why did it so happened. AS a matter of fact when majority of top officials are of same culture and same DNA, everyone try to save others. There is invariably a unity among thieves.

WHY sufficient collateral security was not obtained?,

why the quality of collaterals was not verified from time to time?,

why documents were not obtained from borrower as per legal requirement and why not the same were vetted by legal experts?

Why lawyers who gave a false and fake certificate of quality of documents and collateral assets are not booked to task?

why the value of assets put under security was valued much higher by property valuers than the actual value of the property and why bank officials failed to point out the inflated value in the beginning itself?

Why due diligence was not undertaken by bank officials, RBI officials, auditors in case of securities, stock , promoters , company and all inputs which are key  preventive steps to reduce threats and reduce loss to bank in case of any default? 

At least in case of exposure of Rs.100 crore and above top officials should keep their eyes and ears open if they are not corrupt and are not bought by bribe and costly gifts by promoters like King Mallya.

Who are those General Managers, Chairman of bank, Managing Director of banks, Senior officers of Bank, RBI and Government of India who failed to provide security to such a large value loan, who enjoyed gifts from the promoters and who blindly signed on each proposal for sanction of loans and extension of loans?

Who inspected and certified the good health of account for decades ? Why not auditors , inspectors and vigilance officers who are supposed to alarm banks about probable risks and threats are questioned and put to task ?

Who are those Chartered Accountants who failed to find loopholes in bank accounts and audit reports of the company?

Why UPA Government of last years failed to nip in the bud and who are those politicians who indirectly built pressure on bankers to blindly sanction loan after loan to Kingfishers despite existence of several deficiencies and shortcomings in management, in securities and in computation of eligibility of finance?

Four decades ago a fraud of Rs.65 lac b Natwarlal had perturbed the then government, but a fraud worth Rs.7500 crore could not shake UPA government of Manmohan Singh.

Not only Rs.7500 crore of Kingfisher is now beyond the reach of the government and the bank, but there are at least ten lacs of crores of rupees locked in frauds and bad debts which management of public banks and Government of India cannot recover from defaulters. Thousands of crores of rupees are written off every year by each bank, lacs of crores of rupees are treated as irrecoverable bad debts, thousands of crores of rupees are lost in frauds and so on....

But Government is silent spectators for last many years. The scam is far bigger than al scams of the past . And for all these losses, accusing finger will surely pointed towards corrupt rule of Congress Party.

But now it is the turn of BJP government to prevent further loss to bank. They will have to open the books of 100 top defaulters of the country and find out the name of all top officials of each bank, RBI, Ministry of Finance who failed to discharge their duty and who malicious dealing with the borrower caused loss to bank. They will have to peep into files of each CMD and each ED who enjoyed the gifts of companies like King Fishers and who got promotion after promotion under recommendation of companies like Kingfishers.

GOI will have to investigate the working of at least twenty years of  each Managing Director of each bank who with malicious intention indulged in bad lending to serve their self interest and to accumulate wealth for their own families. They will have to punish CMDs, EDs, General Managers and senior officers  of past twenty years of each bank who have suffered due to top defaulters of government bank.

In the beginning , CBI, CVC and MOF may undertake the task of investigation of loan of Rs. 100 crore and above and in next phase they may find the same in smaller loans. Corruption is deep rooted in banks and in administrative and legal set up. GOI will have to punish the real culprit to inculcate good culture in banks and elsewhere. I t  is top officials who promote bad culture down the line and who promote the culture of flattery and bribery in all cadres of officers.

When 17 talented CEOs of  17 big banks and almost 700 hundred supporting officials of bank, GOI and other controlling and inspecting team fails to prevent loss, how a junior level officers in a branch can stop future and current losses  likely to happen  to bank at branch level is a big question which every prudent banker and every ruler of the country should ponder over seriously not in the interest of the bank only  but in the larger interest of the country .

Lastly when a public sector bank incurs loss or faces erosion in profit due to default by borrowers, it is staff of the bank who are denied wage hike. It is the duty of Bank Unions to protect bank staff from such looters. I hope they will come out of hibernation and stop flattery to top officials of bank in the interest of the bank they serve.

I however salute Modi Government  and RBI  that they have taken a decision to treat all Rs.50 crore and high amount defaults which occur in banks as  fraud and all such cases have to registered with Fraud monitoring Committee and handled as a case related to fraud is handled. Now we have to see whether the government gets real success in punishing real guilty officials and whether they are able to recover the money from such fraudulent officials and borrowers.

I also hope that sooner or the later GOI will treat all types of defaults as fraud with the system. A person or a company which fail to pay loan on demand or who pay tax as per law or who do not take care of pollution control rules or who indulge in adulteration are committing fraud with common men and with the Nation. 

Here it will be desirable to open the eyes of common men that opposition parties like Congress Party or Aam Admi Party or RJD Or JDU are wrong and totally false when they say that   BJP and NDA work for corporate and not for common men. Finance Minister like Mr. Chidambram of UPA government focused  on lending only to corporate houses and as FM he built pressure on PSBs for lending to only big corporate houses to achieve credit targets. During last one year lending to small traders, farmers and SME sector has doubled than what was disbursed a year ago during UPA rule.

If honest investigation is made by an unbiased agency to ascertain the volume of total loan given to corporate , high value corporate compared to common men, it will become crystal clear that it is congress party which fully neglected common men, small traders  and farmers so far as lending by public sector bank is concerned .

Ninety person of credit made by these public sector banks was directed towards corporate houses only. And it is also bitter truth that 50 percent of total bad debts of public sector banks are in the name of 40 big companies only. Bad loan contributed by small borrowers is hardly 1 one  percent of total Non Performing assets of all banks.

I reiterate that Ninety percent of total credit made by bans during UPA government was made to big companies only and hardly one percent of loan was given to farmers, small traders and to small industries. It is only during NDA rule that there is some rise in credit made to poor section of the society.

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