Increase
in Price reduces the demand of a product. As the price of money, in this case, Interest
rates have gone up in India, the corporate indebtedness has significantly
increased. So have the levels of bad debts in this country.
In almost all major economies of the world, interest rates are at an
extremely low level. In the United Kingdom, interest rates have been at rock
bottom for a decade. In Switzerland, they are close to zero. We have the recent
case of Japan Where negative interest rates now exist.
For the 12 large corporate groups that account for 15% of all India’s
debts, interest rates may be a theoretical construct that does not matter. For
the hundreds of thousands of small businesses that borrow money, for the
millions of small and marginal farmers, for the millions of consumers who need
to borrow money to purchase housing, transport equipment and consumer durables,
the Level of high interest rates has meant that the quality of life has been
compromised for a generation or more.
Indian businesses, across the board, are financed by banks that are, in
turn, financed by taxes, given that India’s banks are primarily state owned.
Hence, for all practical purposes, India’s private corporate sector businesses are
disguised public sector enterprises.
Undoubtedly,
there is collusion, between, the lenders, borrowers, regulators and the
political masters. One does not need to be a rocket scientist to figure out the
rest of the story.
So, how did the flamboyant kingfisher Vijay
Mallya screw up?
Exactly
the reason, in a jungle one needs to camouflage for survival, not be seen out
of the crowd, and be vulnerable. The Indian banking sector is going down the
drain and they needed a scapegoat to slaughter and be seen doing the right
thing.
SBI is
bigger than RBI in influence, also, too deep entrenched serving many masters
over the years. There are no morals, no rules and no justice either at the top
or at the bottom of the pyramid. It’s just about survival every day.
During the
global financial meltdown of the last decade, governments were bailing out
large corporate all over; the winds were conducive for such a dole in India
too.
Mallya, a
flamboyant Rajya Sabha member, having actually bought over, Hegde’s JD(S), was
pushed on the front by the cunning lot of side watchers. Taxes on aviation fuel
were high, making domestic airlines, bleed in their balance sheets.
Closing
down the airlines, though, would have been a smarter move then, would have put
the government and the rest of the economy on a negative mode.
So, the
idea of a bailout was floated.
India is a
socialist country, congress, realized they could not be seen helping the rich,
especially, the known Mallya, so they offered him, more borrowings through, the
SBI. Other banks followed the big
brother.
Mallya had known then, where it all was
heading, and eventually he headed to where he had to.
Nothing happened
overnight.
The Ambani’s,
Adani’s are too smart and stay camouflaged.
I have
some personal experience about banking and indebtedness. Thus feel bad about
Mallya.
In 2002, I
borrowed Rs. 5 lakhs from SBI, by mortgaging property worth Rs. 10 lakhs, for an
Agro Business. In 10 years my debt went up to Rs. 65 Lakhs, my property in
mortgage value increased to Rs. 150 lakhs. Obviously, I must have paid the installments
and interests for 10 years to get such an exposure.
We were a
loss making company from day one. The Agro
Sector in a god forsaken, non industrious rural set up would take up more than
a decade to make sense. The increase and renewal of my loan was only serving
the interests and installments. Keeping me away from being an NPA or a Non
Performing Asset. Soon, I reached a
state of default.
I wanted a
restructuring, which was denied and subsequently, the draconian SARFESI was
imposed, my property auctioned for mere Rs. 27 lakhs.
I had to
pay Rs. 96 lakhs besides that as per the DRT order. And I am still a litigant, fighting
for my property and trying to start afresh.
And I can’t
get a loan anymore.
That’s SME
banking in India and I am not the only one.
Maybe not
a mansion, I am sure that Rs. 96 lakhs and some more would have got me a shack,
in the same Southampton neighborhood as Mr. Mallya.
