Syndicate Bank CMD bribery scam puts spotlight on middlemen

Written by Anil Sasi | Sandeep Singh | New Delhi | Updated: Aug 14 2014, 13:18pm hrs
SK Jain-Syndicate BankSyndicate Bank CMD S K Jain was arrested on August 2.
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 wouldnt 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 arrangers. Salary levels are so low at banks that it does not take much to impress a manager dealing with a loan.

Syndication companies usually send out a teaser sheet to prospective clients who are seeking a loan. If the feedback is positive, they begin preparing a financial model for their clients and hawk the proposal to a clutch of banks. Since most banks have a trimester cycle of credit committee meetings, the trick is to send in the project about a month ahead of the close of a cycle. That puts pressure on the banks. Business being weak, (the banks) try to work out a fast response turnaround. Lesser the time, the better the turnaround, said a person who has worked with some of the Andhra-based infra companies and dealt with these debt syndication companies.

Centrum Capital, one of the biggest debt syndication companies, claims to have expertise in identification of the lenders and preparation of proposal and process notes in lender-specific formats, interfacing, negotiating and coordinating with the lenders at all levels and assisting in obtaining necessary sanctions for the proposal and even assistance during loan documentation to seek timely disbursements. At Centrums Barakhamba Road office in Delhi, a staffer from its debt syndication team told a potential client who had had his loan demand rejected by a PSU bank that if structured well, Centrum could push the case in state-owned banks where it claimed to have connections all the way from the operational level to the top.

According to information available with The Indian Express, a range of ex-PSU bank officials make up Centrums team, both at its Delhi and Mumbai offices. The Delhi debt syndication team is headed by two ex-Canara Bank officials T K Bajaj, who retired as general manager of prime corporate credit wing at Canara Bank, and Vijaylaxmi, who was an assistant general manager at Canara Bank and left midway to join Centrum as a vice-president.

Centrums debt syndication team in Mumbai is headed by S K Verma, who was head, large corporate vertical, at Union Bank of India, and has other ex-PSU staffers that include vice-president K Pothiraj, who was formerly a general manager at Bank of India, and vice-president R Anchan, who was a deputy general manager at Bank of India. Mathew Joseph, an ex-deputy general manager at Andhra Bank, was also learnt to be working with Centrum till six months ago as a vice-president. Centrums managing director P Kalyanaraman is a former executive director of Federal Bank and an ex-GM of state-owned Bank of India. R S Reddy, a former CMD of Andhra Bank and an ex-ED of Union Bank of India, is on the board of directors of Centrum.

An email sent by The Indian Express to Centrums company secretary and the corporate affairs team seeking details about the role played by ex-employees of PSU banks employed by it went unanswered.