RBI fines ICICI Bank, 11 other banks for Deccan Chronicle default

Written by ENS Economic Bureau | Mumbai | Updated: Jul 26 2014, 13:42pm hrs
ICICI BankThe maximum penalty of Rs 40 lakh was imposed by the RBI on ICICI Bank for Deccan Chronicle default.
The Reserve Bank of India (RBI) which carried out an independent scrutiny of the loan and current accounts of Deccan Chronicle Holdings Ltd (DCHL) has slapped a combined monetary penalty of Rs 1. 50 crore on 12 banks for violations of various rules instituted by the central bank.

The 12 penalised banks include five public sector banks and seven private banks. While the maximum penalty of Rs 40 lakh was imposed on ICICI Bank, other penalised included Andhra Bank, Axis Bank, Canara Bank, Corporation Bank, HDFC Bank, IDBI Bank, IndusInd Bank, Kotak Mahindra, Ratnakar Bank, State Bank of Hyderabad and Yes Bank.

Hyderabad-based Deccan Chronicle borrowed Rs 4,000 crore from a consortium of 18 lenders and defaulted on repayments. The company had misused the banking system by borrowing from one set of lenders without keeping others in the loop. Normally when a bank extends a loan, it is supposed to do due diligence on its credit history. Banks could have done a better job in preventing the buildup of such a huge NPA in this case, said a banking source.

According to the RBI, it carried out a scrutiny Deccan Chronicle loan accounts in certain branches of these 12 banks in late 2013. Based on the findings of the scrutiny, the RBI issued show cause notices to these banks in March 2014, to which the individual banks submitted written replies. After considering the facts of each case and the individual banks reply, as also, the personal submissions etc., by some of the banks before its Committee of Executive Directors, the RBI came to the conclusion that some of the violations were substantiated and warranted imposition of monetary penalty, the RBI said.

This action is not intended to pronounce upon the validity of any transaction or agreement entered into between the concerned bank and the borrower, the RBI clarified.

What surprised bankers and the RBI was the companys debt ballooning fourfold in the space of 12-15 months. Its borrowings shot up from around Rs 1,000 crore to Rs 4,000 crore in a short span. Adding to the woes, bankers discovered quite late that the value of assets pledged was insufficient to cover the loan recovery.

For the Rs 4,000 crore borrowings, the collateral was not even half of the loan amount. Bankers also found that the company repledged with other lenders assets it had already offered earlier as collateral.

DCHL used the debt for the acquisition of a chain of book stores, purchase of the Indian Premier Leagues Hyderabad franchise Deccan Chargers (terminated by the cricket board) and a stillborn aviation venture.