Syndicate Bank CMD bribery scam puts spotlight on middlemen

Aug 14 2014, 07:48 IST
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Syndicate Bank CMD S K Jain was arrested on August 2. Syndicate Bank CMD S K Jain was arrested on August 2.
SummaryArrest of Altius Finserv director puts spotlight on role of middlemen in the Indian banking sector.

The arrest of Pawan Bansal, director of Altius Finserv Private Ltd, a financial advisory firm that helps corporates raise funds, has put the spotlight on the role of middlemen in the Indian banking sector. Bansal, who was arrested on August 3 along with Syndicate Bank Chairman and Managing Director S K Jain, was one such middleman who fixed deals between the Manipal-headquartered PSU bank and companies looking for large loans.

The CBI has charged Bansal of having acted as a middleman between senior-level functionaries of PSU banks and private companies. Companies like Altius work on a simple model: mid-size companies, often with low credit worthiness and who wouldn’t have ordinarily been considered for loans, approach debt syndication companies such as Altius which work to make their case worthy of consideration by the banks. Altius claims to have been offering financial services like “credit solutions, debt capital market and investment banking”.

Most of these debt syndication companies employ senior-level executives who would have retired from a public sector bank or a financial institution. This helps open doors for them at PSU banks and makes loan approvals easier. The name of the game is familiarity. “Try pushing an unknown money bag into the circle, it will not work,” says a middleman at one of the debt syndication companies in Delhi. “We provide a sense of comfort to the banks.”

Many of the senior staff at Altius are old PSU hands, starting from chairman Hari Das Khunteta, who retired as chairman and MD of Rural Electrification Corporation, and Executive Director Karan Bagga, who had earlier worked with HUDCO.

Loan syndication, though not illegal in India, is a sector that is largely unregulated. In mature financial markets such as in the UK and US, financial companies provide such services for a fee and some of their clients even include nations which propose to raise a loan. In India, in the absence of such financial companies, large business groups have their own supporting entities such as Tata Capital, Mahindra Finance or Aditya Birla Money. Smaller groups, which have to depend on banks, often turn to debt syndication companies.

In the syndication business, the rule of thumb is that for a Rs 100-crore loan, the commission the debt syndication companies get is one per cent. It goes up to 1.5 per cent when the sum is lower. What about paybacks to bank officers? “It depends,” said one of the

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