It is impossible to ignore the timing of United Bank of India’s declaration that Kingfisher Airlines, its chairman Vijay Mallya and three company directors are “wilful defaulters”. Why has it come so late in the day? The question deserves to be raised irrespective of whether UBI has a strong case to prove that the promoters of the grounded airline had no intention of paying back the ₹400 crore worth of loans borrowed from the bank. Indeed, one could ask why Kingfisher Airlines had sought to block the sale of properties it had pledged as collateral for bank loans by filing court cases if the company was serious about honouring repayment obligations. Also, why did the company respond to UBI’s wilful defaulter notice by moving the Calcutta High Court and why again Mallya and other senior Kingfisher Airline officials chose not to appear at a meeting of the bank’s grievance redressal committee on Monday — the eventual provocation for attaching the wilful defaulter tag.

But the larger and more germane issue is why this whole process took so long. How did banks end up lending over ₹7,000 crore to a company in a troubled industry and, worse, not do anything even while it was piling up jet fuel arrears and defaulting on interest repayments more than four years ago? What stopped them from invoking guarantees provided by the promoters or enforcing their security interests at that point? There is more than a touch of irony in Kingfisher Airlines being declared a wilful defaulter by UBI, a bank whose stressed loans (both bad as well as restructured) amount to well over a fifth of its outstanding advances. If anything, Kingfisher Airlines — or even Bhushan Steel, where banks have combined exposure totalling some ₹40,000 crore — is really a story about ‘wilful lenders’ who waited for their loans to turn bad before deciding to act, when it was too late.

Loose lending practices by public sector banks (PSB) have resulted in stressed assets averaging 12 per cent of their gross advances, which is almost three times more than the ratio for private banks. This can be fixed only by forcing an early recognition of distress symptoms and taking prompt corrective action. The Reserve Bank of India has recently formulated guidelines mandating close monitoring and formulation of credit action plans by banks even when loans are overdue by two months. Such plans require borrowers to bring in additional money and consider loan restructuring only if they are willing to extend personal guarantees along with a declaration of not alienating any assets without lenders’ permission. Any deviations from these will be reason enough to initiate recovery process. Rigorous implementation of this framework, along with reducing the Government’s stake in PSBs to below 50 per cent to insulate against political lending, is the only way to prevent future Kingfisher Airline-type disasters.

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