Even as the Government is making all out efforts to ensure that the GDP (gross domestic product) – after contracting by 8% during 2020-21 – returns to a high growth trajectory, it is concerned at the tepid recovery in credit availability which is considered to be the sine qua non of growth. According to the latest data of the Reserve Bank of India (RBI) annualized non-food bank credit growth in January this year was slower at 5.7% compared to 8.5% in the same period last year. Credit to industry, however, contracted by 1.3% in January 2021 as compared to 2.5% growth in January 2020.
A major (perceived) bottleneck is the reluctance of bank officials to sanction loans who fear they could come under the scanner of investigation/prosecution agencies for purely ‘commercial decisions’. During the last three years (2018 – 2020), the Central Bureau of Investigation (CBI) registered bank fraud cases involving amounts over Rs 100,000 crore (in 2020 alone, it registered 200 such cases, involving amount totaling Rs 70,000 crore).
The Government wants to allay their fear by letting the CBI only look into some ‘extraordinary’ bank frauds (such as the IDBI Bank – Kingfisher Airlines) with specialized agencies such as the Serious Fraud Investigation Office (SFIO) in the Ministry of Corporate Affairs (MCA) being asked to investigate most other cases.
The above move is also justified in terms of what Prime Minister Narendra Modi said at the HT Leadership Summit (December 2019), that bank employees should not be penalized for “genuine business decisions” as also the exhortation by the finance minister, Nirmala Sitharaman in the same month, “honest bankers need not to fear the three Cs – CBI, the Central Vigilance Commission (CVC) and the Comptroller and Auditor General of India (CAG)”.
There can be no two opinions that officials should act fearlessly – free from any encumbrance including the possibility of coming under the lens of agencies. This is a pre-requisite for building a robust credit culture and ensuring that credit availability increases in sync with the requirements. However, this gels only with situations wherein the officials have conducted due diligence, carefully assessed the viability of the project/venture for which loan is to be given, convinced themselves about the credibility of the borrower and even taken adequate security/collateral against the loan.
In such a scenario, the chances of any fraud happening are negligible. Even in an unlikely event of things going wrong and the loan becoming NPA (non-performing asset), the sheer fact that the official had conducted ‘due diligence’ and taken all precautions while sanctioning it by itself should instill confidence; he does not need any additional comfort such as barring CBI from knocking at his door.
On the other hand, if the official has granted loan in a cavalier fashion without conducting due diligence and assessing project viability or acted with malafide intent for making personal gain under what is termed as “quid pro quo” arrangement then, there is every possibility of the loan becoming an NPA. In such a scenario of the fraud being perpetrated on the bank, the authorities must not allow the idea of ‘keeping the CBI at bay’ even cross their mind.
That frauds are happening in a systematic manner, it will be clear from four major financial entities viz. Yes Bank, Punjab and Maharashtra Cooperative (PMC) Bank, Infrastructure Leasing and Financial Services (IL&FC) and Dewan Housing Finance Corporation Limited (DHFL) having been pushed towards bankruptcy during the last 3 years solely because their top brass acted with malafide intent while sanctioning loans. Here are some harsh facts.
Between April and June 2018, Yes Bank invested Rs 3,700 crore in short term debentures of DHFL. Almost at the same time, the chairman of the latter “paid a kickback of Rs 600 crore” to former’s promoter and his family members in the garb of builder loan given to DOIT Urban Ventures – a company owned by the promoters’ family. According to the CBI, despite being a short-term debenture investment, DHFL has not redeemed Yes Bank’s investment till date.
The DHFL is alleged to have had siphoned off Rs 31,000 crore out of total bank loans of Rs 97,000 crore using a web of multiple shell companies. A dubious loan of Rs 6,500 crore was given by PMC to Housing Development and Infrastructure Limited (HDIL) in connivance with bank’s top brass. Likewise, tens of thousands of crores questionable loans given by IL&FS landed in dozens of shell companies owned by top brass of the former.
Another brazen case involves defrauding the Pradhan Mantri Awas Yojana (PMAY) by directors of DHFL. Under PMAY, loans are granted to people from economically weaker sections and low-and middle-income groups to buy land and construct houses, or buy housing units, through ‘credit-linked interest subsidy’. The beneficiaries get interest subsidy of 3% – 6.5% payable upfront. The subsidy amount is to be claimed by the financial institutions (FIs), which grant these loans, from the National Housing Bank (NHB) who in turn, gets reimbursement from the Government of India (GOI).
DHFL – a FI tasked with implementation of the scheme – created 260,000 “fake and fictitious” home loan accounts in a non-existent Bandra branch between 2007 and 2019 for total loan of about Rs 14,000 crore. Out of this, around Rs 11,750 crore were deposited or routed to several fictitious firms known as Bandra Book firms. Several of these accounts were opened under PMAY and interest subsidy of about Rs 1900 crore claimed from NHB till December 2018 of which the latter has already reimbursed Rs 540 crore.
The top brass of DHFL committed the fraud with connivance of officials of NHB which happens to be a wholly owned subsidiary of the RBI. Being the top regulator of the banks and FIs, the responsibility of the RBI is to prevent any fraud in these institutions and yet, such a thing happening under its nose is unconscionable. By any stretch of imagination, it can’t be a case of sheer negligence or a legitimate commercial decision going wrong.
That apart, there are innumerable cases of bank fraud – each running into several crore – tumbling out of the cupboard almost every other day. These can’t be wished away as ‘one-off’ incident. The frauds are an outcome of a well orchestrated game plan in which bank/FI officials are actively involved. Indeed, this is more ‘systemic’ in nature having to do with a sense of fearlessness amongst officials that ‘even if they do something horribly wrong, they will go scot free’.’
This mindset can be dwelt with only by wielding a stick. The involvement of the CBI and other agencies such as Enforcement Directorate (ED) has to be seen from this perspective. In this backdrop, a sweeping order that CBI will only look at frauds involving amount above a threshold say Rs 500 crore will send a wrong signal. It will tantamount to glossing over the wrong doings; in a way letting them continue unabated. This must be avoided.
Even as officials doing their job honestly and sincerely have nothing to fear – rightly observed by PM/FM – those who are out there to perpetrate fraud can be reined in only by instilling fear. In such cases, CBI should be allowed to do its job without any fetters.