CBI wants vigilance staff to watch over loan recast

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SummarySpecial attention is on Deccan Chronicle, Kingfisher Airlines, and Sterling Biotech, sources said.

Apart from assessing whether a company will be able to repay a loan, banks evaluating proposals in the corporate debt restructuring (CDR) cell will have to contend with the Central Bureau of Investigation soon. The CBI has asked chief vigilance officers (CVOs) of public sector banks (PSBs) to furnish a list of cases referred to the cell where each PSB has an exposure of Rs 100 crore and above, with an “independent analysis” on the reasons for such a reference and wrongdoings, if any.

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The CBI has also suggested that bank frauds can be curbed if the CVOs participate in all cases of consortium lending in which their respective bank is a member. With banks shifting the blame to one another, it is becoming difficult to fix accountability, the investigating authority believes.

Search: Deccan Chronicle, Kingfisher Airlines, Sterling Biotech

The CDR mechanism is aimed at reviving genuinely distressed companies.

Sources said the CBI is separately looking into the functioning of the CDR cell, comprising banking industry officials, to see if borrowers, in collusion with bankers, are misusing the CDR mechanism for personal benefits.

The move comes after a recent conference where CBI chief Ranjit Sinha raised the issue of the rise in bank frauds particularly those involving amounts of over R50 crore. He had also alleged that the agency has had problems with the delay on the part of the banks in reporting frauds as it in turn impacted the agency’s efforts to track several crimes and its proceeds.

According to the CVO of a PSB, the CBI is well within its powers to ask for such information (list of CDR cases) which could be relevant to their investigation. The CVO said the CBI’s letter does not amount to giving any direction to CVOs or tantamount to proceeding against any bank officers, as in such cases it requires sanction from various authorities including the Central Vigilance Commission (CVC) and the government (the finance ministry, in the case of high-ranked bank officers).

"The CBI has only asked the CVOs to see if there is any wrongdoing or suppression of facts or withholding of information, and state what really led to these cases being referred to the CDR cell," the official said. The aim of such vigilance activities is not to stifle risk taking, which is central to the banking business, but only to prevent malpractices and weed out corruption, in turn making the banking system more healthy, the sources said.

The CVOs of PSUs are essentially chosen from banks, IAS and other allied services, and come under the CVC. The CVOs of PSBs are career PSB officials, but the CVO of a PSB is chosen from another PSB to avoid conflict of interest.

The financial services secretary Rajiv Takru had mooted an independent oversight committee for the CDR cell -- consisting of members including legal, financial and technology experts -- to ensure that only genuine cases are referred to the CDR cell and had sought suggestions on it from the Indian Banks’ Association.

The CBI on its part is scrutinising the top 30 cases of non-performing assets of the entire banking system in the country. Special attention is on cases such as the one involving Deccan Chronicle, Kingfisher Airlines Ltd, and Sterling Biotech Ltd, the sources said.

As on June 30, this year a total of 415 cases involving Rs 2.5 lakh crore were approved by the CDR cell. This was up from 309 approved cases worth Rs 1.68 lakh crore as on June 30, 2012. Also, restructured standard assets as a percentage of gross assets went up to 5.7% as at March end 2013 from 4.7% last year, while the same for PSBs increased to 7.1% from 5.7%. Gross NPAs of public sector banks had jumped to Rs 1.79 lakh crore at the end of the June quarter from Rs 1.55 lakh crore as on March 31, 2013.

In August 2012, Reserve Bank of India deputy governor KC Chakrabarty had said in a speech: "It appears that the provisions of the CDR mechanism have not been used very ethically and judiciously, giving rise to the unprecedented increase in cases under CDR." Pointing to the possibility of certain errors in the system, he said, "An unscrupulous borrower with an unviable account may avail the benefit of restructuring and at the same time, a bona fide borrower with a viable account may be denied the opportunity to resurrect his account."

Prime Minister’s Economic Advisory Council chairman C Rangarajan has defended the risk taken by bankers, saying that though most lending is done on growth projections and expectations, sometimes it does not go according to plan due to factors beyond the bankers’ control. Action needs to be taken only against those officials found guilty of having a mala fide intention while lending, he had said.

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