Will the buck in the Vijay Mallya case stop with action against bank officials?

The erstwhile liquor baron Vijay Mallya’s efforts to evade the dunning Indian banks to whom he owes some Rs 9,000 crores is certainly not the biggest case of financial fraud in the country by value. But the brazenness and panache with which the recipient of an honorary doctorate of philosophy in business administration from the Southern California University for Professional Studies seems to have pulled off this trick is in a league of its own.

Business journalists, historians and observers of an older vintage scoff at the suggestion. “Read about the Mundhra scam, dear boy,” advised a noted London-based economist.

Despite the allegations of defrauding the world’s second-fastest growing major economy, Mallya leads the good life in London, away from India’s judicial process. He continues to run businesses in India, and till the end of April, he was a member of the Indian Parliament, thanks to the unanimous support of political formations in his home state of Karnataka. Despite the quite apparent conflict of interest, the owner of the now-defunct Kingfisher Airlines was also part of parliamentary committees related to civil aviation.

Greed and institutional connivance form the link to most cases of financial scam. In the Haridas Mundhra case, the accusation was that the state-owned Life Insurance Corporation of India had in 1957 bought Rs 1.2 crores worth of his shares to help his firm. TT Krishnamachari, the finance minister at the time and a leading Madras industrialist whose family’s influence ranged from the world of Carnatic music to business and politics, had to resign in the wake of the scam. Justice MC Chagla (grandfather-in-law of ousted Tata Sons chairman Cyrus Mistry), in his commission of inquiry report, noted that Mundhra was “not an industrialist at all, but an adventurer whose passion was to swallow as many firms as possible”.

Scapegoats?

Those words ring a bell?

The Central Bureau of Investigation’s arrest on January 23 of Yogesh Agarwal, former chairman and managing director of IDBI Bank, who in 2009 agreed to lend Rs 950 crores to Mallya’s Kingfisher Airlines despite the firm being belly up, shines a light on institutional malfeasance. This quantum of lending from a public-sector bank is no different from an equity infusion into a dubious entity by a state-held insurance company.

According to the agency, Agarwal and his senior colleagues at the bank hastened the loan disbursal to Kingfisher Airlines despite the firm’s junk rating.

Are Yogesh Agarwal and the other bankers mere scapegoats? No chairman and managing director of a government-owned bank can independently decide to offer credit worth Rs 950 crores to a businessman who has only his trademarks to pledge in the face of bankruptcy. It is unimaginable that such a decision would not necessitate a nod from the Finance Ministry, or rather the finance minister. Remember, it is a nearly Rs 1,000-crore decision, not the sanctioning of an out-of-turn Rs 10-lakh personal loan.

Political collusion

The loan to Mallya’s company was given in 2009. The very next year, Agarwal was made the chairman of the Pension Funds Development Authority of India under the finance ministership of Pranab Mukherjee, now the President of India. The Pension Funds Development Authority of India, as a regulatory body in 2010, was the hottest show in policy town. A regulator independently determines rules that first and foremost keep consumer interest in mind besides sovereign interests. Agarwal, having just signed off a charitable loan using public funds to Kingfisher, a company insolvent by all accounts, was made the custodian of a new financial scheme that the government was keen to promote.

The National Pension Scheme that Agarwal regulated was unlike any other savings scheme. The government wants trillions of rupees of the common man’s savings to go into pension schemes. This scheme, operated by a multitude of state-owned and private fund managers, gives investors the option of deploying their retirement corpus in various instruments, including the risky equity markets.

It boggles the mind that a man who siphoned off public money to a corporate adventurer could be installed as the guardian of people’s life savings.

Agarwal was a State Bank of India lifer. Joining the bank as a junior officer in 1972, the 66-year-old rose to be its managing director in 2006. Soon, he was named the chairman and managing director of another government-owned bank, IDBI Bank.

Then, in 2013, when P Chidambaram became the finance minister whose rivalry with his predecessor, Pranab Mukherjee, was no secret, Agarwal was shunted out of the pension fund authority with 18 months of his tenure remaining. At the time, the Finance Ministry hinted that Agarwal’s style of functioning was heavy-handed. Agarwal had during his time pushed for allowing pension fund managers greater freedom to hard-sell the National Pension Scheme and allow greater equity market exposure, risking investor capital.

It would be utterly surprising if the buck for wrecking public financial institutions and imperilling the common man’s capital for the profit of crony businessmen stopped with bankers. But given the political collusion, it is likely that that is exactly what investigations into l’affaire Mallya would end up telling us.