India nabs fugitive 'Beer King' in UK over unpaid loans
Arrest underscores Modi's resolve to tackle bad debt
YUJI KURONUMA, Nikkei staff writer
NEW DELHI -- The Indian government finally caught up to a well-known business figure who had fled the country and left behind a mountain of debt from a failed foray into the airline business.
Vijay Mallya, chairman of United Breweries, was arrested in London by Scotland Yard on Tuesday. The Indian government under Prime Minister Narendra Modi has pursued the fugitive business tycoon, who beat a retreat to the U.K. in March last year with some 90 billion rupees ($1.39 billion) in unpaid liabilities.
The debt stemmed from the now-defunct Kingfisher Airlines. The company never made a profit, and lost its airline license in 2012. Banks auctioned off seized assets, but the efforts only partially offset their losses. Mallya left the country before creditors could get to his personal assets.
Indian banks are saddled with massive nonperforming loans. The total was estimated at 6 trillion rupees as of the end of last year. Given the massive amount, Mallya's unpaid debt is just the tip of the iceberg. For instance, Indian banks are sitting on 880 billion rupees in nonperforming loans to the midtier Indian conglomerate Essar Group.
However, Modi is said to have asked British Prime Minister Theresa May for the extradition of Mallya in a meeting last autumn. The Indian government continued to call for the U.K. government's help in its pursuit of the fugitive businessman through its embassy in London, according to reports.
The news of Mallya's arrest has sent a clear signal that the Modi government is serious about tackling the bad debt that has been crippling the Indian economy.
Some have speculated that the government and central bank scaled back their commitment to dealing with nonperforming loans at banks. With Raghuram Rajan at the helm, the Reserve Bank of India set a deadline of March 2017 for banks burdened with bad debt to clean up their balance sheets.
But this deadline has hardly ever come up, since he left as central bank governor last summer. Sources close to the ruling party admitted last year that some crony capitalists had called for getting rid of Rajan, giving rise to the view that efforts to address bad debt will lose steam.
The arrest of Mallya will not do much to reduce the overall amount of nonperforming loans, but it has poured cold water on the speculation. This is important, since clearing bad debt is a step India must take to remove a significant brake on economic growth. The burden of bad debt has been weighing not only on banks but also other businesses, holding down capital investment.