The overreach of the Central Bureau of Investigation (CBI) needs immediate national attention. On Friday, the investigative agency named in its First Information Report (FIR) 15 senior bankers of IDBI Bank in the case of two loans sanctioned in 2010 and 2014 to two companies belonging to the Sivasankaran group, the original owner of Aircel.
The details of the case appear to be as follows: in 2010, IDBI Bank sanctioned Rs 322 crore to a Siva group company named Win Wind Oy based in Finland. The loan turned into a non-performing asset, or NPA, in 2014 when Win Wind filed for bankruptcy in Finland.
The Siva group then requested another loan from IDBI of Rs 523 crore for another of its group companies, Axcel Sunshine Limited, based in British Virgin Islands, a tax haven. The undertaking was that, that money will be used to pay back WinWind’s loan and for other activities in Axcel. The group offered shares it owned in Tata Teleservices (TTSL) as security for the loan. The hope at that time was that TTSL will be listed at some point.
However, the tide completely turned for telecom companies, especially after Jio’s entry and both Axcel and Aircel have since become bad loans.
The FIR has been filed against 15 IDBI bankers and three independent directors – S Ravi, a well-known chartered accountant and currently chairman of Bombay Stock Exchange, Ninad Karpe, CEO of Aptech, and PS Shenoy, former chairman of Bank of Baroda who retired in 2004. The bankers named include Melwyn Rego, MD of Syndicate Bank, and Kishore Kharat, MD of Indian Bank.
Among banking circles, even mentioning Melwyn Rego’s case in an instance of fraud will be received with shock or laughed off as a bad joke. Naming him in an FIR, almost any senior banker will testify, is a travesty of justice from every angle.
A Different Aircel Then
Firstly, any banker placing his bet on Aircel in 2010 or in 2014 can hardly be accused of “causing damage” to public money. Aircel had nearly 80 million customers in 2014, and had been in existence since 1999. It was the sixth-largest mobile service provider in India with a subscriber base of 79 million even as of February 2018, when it started winding up. Aircel was a market leader in Tamil Nadu and had considerable presence in Odisha, Assam and the North-East telecom circles.
Secondly, it is only now after the recent blow-up of accumulated NPAs that giving loans to return a previous loan is looked at with so much suspicion. It was and is common in banking circles to give an extra loan to a company that seems in temporary trouble. Only the second loan needs to be given with more collateral, which is what the IDBI bankers did in this case. To expect the bankers, in late 2013 or early 2014, to know that Jio will one day come and blow away all telecom companies barring two, is expecting bankers to be soothsayers.
Again, Melwyn Rego’s case will best illustrate a banker’s perilous dilemma today. He was promoted from being deputy MD at IDBI to the position of MD of Bank of India in 2016. Rego was then demoted as MD of the smaller Syndicate Bank in 2017. Why? Because he was voting against most NPA resolution schemes if they required him to agree to a haircut or to more loans.
Here is the paradox: a banker gets demoted because he refuses to take the risk to resolve a bad loan and when he risks giving a loan to a well-established company that is the sixth largest telecom operator, he gets an FIR, five years later, for allegedly fraudulent lending.
A Bizarre Case
The case gets even more bizarre when it comes to independent directors. The board is apprised of dozens of loans in a meeting. To expect independent directors to do due diligence on dozens of loans in a single meeting is expecting the absolute impossible.
The entire list of names in the FIR sounds like a joke, if it were not for the serious consequences it will have on the personal lives of these men. These ridiculous instances of over-reach are also having a deleterious impact on public sector banks. Many bank MDs complain that their best officers are refusing to be posted to the credit department, looking at the all round witch hunting of their seniors whose integrity they can personally vouch for.
The fear among bankers is that lately the pattern appears to be to arrest a few bankers before every major election. Some were arrested in the Kingfisher case before the UP election; the pattern is playing out now ahead of the Karnataka polls. The nightmare for bankers is that there are at least three more state elections and one general election to go in the next 12 months.
One hopes, for the country’s sake, this connection between elections and banking investigation is not true. At any rate, it is important for the finance ministry and the Prime Minister’s Office (PMO) to step in and stop the bizarre way in which bank failures are randomly and/or routinely being seen as frauds. India has lost heavily for not being able to punish bad guys in time. But the country will pay much more heavily if it punishes good men.
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