Vivek Kaul, March 22, 2016
Mallya’s debts are a very small portion of the total amount of money owed by various corporates to Indian banks.
The gross non-performing assets (NPAs) ratio has more than doubled between 2012-13 and 15 December 2015 from 3.22 percent to 6.78 percent.
Mallya apart, what about the other corporates who have borrowed from banks and are now not repaying their loans?
If media coverage were to be a reflection of the scale of any problem, then it can safely be said that Vijay Mallya is single-handedly responsible for the crisis in the Indian banking sector.
But that is clearly not the case.
Mallya owes Indian banks around Rs 9,000 crore. This is a very small portion of the total amount of money owed by various corporates to Indian banks. Minister of State for Finance Jayant Sinha shared some interesting data in a written reply to a question in the Lok Sabha, on 11 March 2016.
The accompanying table shows us how big the problem of banks’ lending to corporates actually is.
The gross non-performing assets (NPAs) ratio has more than doubled between 2012-13 and 15 December 2015. It has jumped from 3.22 percent to 6.78 percent. The gross NPAs ratio is essentially obtained by dividing gross non-performing assets by gross advances, or total loans given by the banks, in this case to corporates.
And how do we define gross non-performing assets? According to the Reserve Bank of India, “An asset…becomes non performing when it ceases to generate income for the bank.” When the corporate borrower stops paying interest and repaying the principal on a loan (a loan is an asset for a bank), the bank typically allows for a grace period of 90 days. After this grace period is over, the bank categorises the loan as a non-performing asset and starts setting aside money (or making provisions) for it. The total sum of such loans forms the gross-non-performing assets.
It is worth remembering here that a loan being categorised as a gross non-performing asset does not mean that all is lost for the bank when it comes to that particular loan. The bank can recover money from the asset that has been offered as a collateral against the loan. Of course, this is not as straightforward as it sounds.
In Mallya’s case, he has also given personal guarantees to banks while taking loans for Kingfisher Airlines. Mallya owes around Rs 9,000 crore to banks. This is a very small amount if one compares it to the gross-non-performing assets of corporate lending carried out by banks.