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Policy Pandit is where Lutyens’ corridors meet the pulse of the public square, bridging the gap between government files and everyday conversations. Armed with footnotes in one hand and sharp perspective in the other, Pandit Ji doesn’t just follow the news, he slices through it with surgical sarcasm and policy precision. When public narratives get too loud, he listens for what’s missing between the lines.

"The Flight of the Kingfisher and the Curious Case of Vanishing Loans”

Vijay Mallya breaks his 9-year silence in a 4-hour podcast with Raj Shamani. No, this wasn’t an episode of India’s Got Debt Lately, but a masterclass of NPAs, Bankruptcy and a well curated Public Perception Strategy.

The episode has reignited discussions, not just about personal accountability, but also about deeper issues in India’s financial and regulatory systems.

As Policy Pandit, let’s go beyond headlines and explore this through a policy lens, unpacking the terms and systemic gaps that shape such crises. The Dialogue Between the Policy Noob and the Ever-Calm POLICY PANDIT JI

Policy Noob: Pandit Ji, the Vija y Mallya podcast was trending. He claims he was trying to repay his loans and that the banks, and even the finance ministry, assured him help back then. But if we had regulations like SARFAESI, Debt Recovery Tribunals, how did such massive loan defaults go unchecked?

Pandit Ji: Ah, my dear Noob , what you’re seeing is not just a story of one man, but a mirror to the many cracks in our financial ecosystem. In the mid-2000s, Kingfisher Airlines was not merely a business rather it was a brand draped in glamour. Banks extended credit not solely based on financial metrics, but on perceived prestige. In 2008, under economic pressure and rising aviation fuel prices, the government reportedly advised Mallya to not downsize. A 17-bank consortium led by SBI lent him around ₹6,000 crore. Some of this was backed by collateral but the quality of that collateral left much to be desired. There were aircraft, unused helicopters, even office equipment, but these were neither liquid nor sufficient.

Policy Noob : So, loans were given based more on face value than balance sheets? He defaulted on the loans with more swag than a Bollywood villain?

Pandit Ji: Not so fast. Before branding him a villain, understand the system that allowed the mess. It was a cocktail of reputation-based lending, political assurance, and systemic optimism. But soon that optimism turned into what we call distressed loans. These are loans that banks believe won’t be recovered in full, either due to the borrower’s instability or because funds were diverted. If these distressed loans are left unresolved, they become non-performing assets.

Policy Noob: Right, I know NPAs are a big problem. But how exactly are they defined? Is it like No Paisa Available?

Pandit Ji: The Reserve Bank of India defines a loan as a Non-Performing Asset if the interest or principal payment is overdue for more than 90 days. Once this happens, banks must stop treating it as an income-generating asset and start provisioning against it, affecting their profitability. Kingfisher’s accounts were declared NPAs by 2012.

Policy Noob: And then came the infamous label—‘wilful defaulter’. What qualifies someone for that?

Pandit Ji: A wilful defaulter is someone who has the capacity to repay the loan but chooses not to. It could also mean the borrower has diverted the funds for purposes other than those intended or has sold off secured assets without informing the lender. It’s a formal classification by the bank after following due process. Mallya was designated a wilful defaulter by several banks in 2014.

Noob: Still, I don’t understand why the existing laws didn’t help banks recover the money. What about SARFAESI and the DRTs?

Pandit Ji: The SARFAESI Act, enacted in 2002, empowered banks to seize and auction assets without court intervention. But it works best when there’s strong collateral. In Mallya’s case, much of the security was either non-liquid or entangled in legal disputes. Debt Recovery Tribunals, created under the 1993 Act, were supposed to fast-track loan recoveries. But over time, they became clogged with cases, over one lakh were pending at one point and their resolution times exceeded 4 years.

Noob: And that’s when the IBC came in, right?

Pandit Ji: Correct. The Insolvency and Bankruptcy Code, introduced in 2016, was designed as a unified framework for resolving insolvencies. It mandates a time-bound process: companies in default are taken to the National Company Law Tribunal. There, a resolution professional is appointed, and a committee of creditors decides whether to restructure the debt or liquidate the firm. The original intent was to resolve cases within 180 days, extendable to 330. However, actual durations often stretch beyond 400 days due to legal complexities.

Noob: Sounds better, but still imperfect. Basically, a time-bound breakup instead of dragging a toxic relationship. Is that why the Bad Bank idea came in?

Pandit Ji: You’re thinking like a policy professional now. Traditional Asset Reconstruction Companies existed but couldn’t handle the scale of NPAs. In 2021, the government created the National Asset Reconstruction Company Limited, or NARCL. Its job is to acquire stressed loans from banks. It pays 15% upfront in cash and issues security receipts for the rest, which are backed by a sovereign guarantee worth ₹30,600 crore for five years. Then comes IDRCL, the India Debt Resolution Company Limited, which actually manages the resolution process. Together, they form the Bad Bank framework, separating toxic assets from regular lending activity, thus allowing banks to focus on fresh credit.

Noob: And what about Nirav Modi, Mehul Choksi? How are they linked to this ecosystem?

Pandit Ji: These cases are even more layered. Nirav Modi and Mehul Choksi exploited Letters of Undertaking at Punjab National Bank without adequate collateral. The fraud, discovered in 2018, involved over ₹13,000 crore. Their stories reflect not just borrower manipulation, but insider collusion and auditing failures. Like Mallya, they too fled abroad before enforcement agencies could act decisively. The lesson here is that legislation alone doesn’t ensure justice, robust enforcement and real-time oversight do.

Noob: So the system is evolving, but still catching up with the pace of financial manipulation?

Pandit Ji: Precisely. Laws like IBC and institutions like NARCL-IDRCL are major reforms. But real change lies in preventing such lending failures through stronger due diligence, coordinated regulatory action, and holding institutions accountable for risk management lapses.

Noob: This isn’t just a policy issue, Pandit Ji. It’s an ethical one too.

Pandit Ji: And that, my dear Noob, is the toughest reform of all.

Policy Pandit’s Closing Thought

The Mallya case is not just about one individual fleeing the country. It’s a case study of how weak risk governance, slow recovery mechanisms, and fragmented enforcement expose the financial system.

The solution doesn’t lie in punishing individual defaulters alone, but in:

● Strengthening pre-loan scrutiny.

● Modernising judicial and regulatory coordination.

● Ensuring public accountability in large-ticket banking decisions.