Collusion and nepotism have allowed big businesses to rip off India's banking system under Modi govt’s watch

Business is rarely risk free. So are bank loans. There is nothing unusual about non-performing loans or assets. They exist in every economy. But when business promoters collude with bank management to manipulate loans in their personal favour, they become a matter of serious concern.

And this seems to have become a growing trend in India.

The latest report on the promoters of a Gujarat-based ship construction firm, ABG Shipyard, allegedly defrauding a consortium of 28 banks and financial institutions to the tune of Rs.22,842 crore, should be a cause of worry as the forensic audit by Ernst and Young (EY) consultancy revealed that the promoters colluded to illegally divert and misappropriate large funds in criminal breach of trust.

The loan account was declared as ‘non-performing asset’ (NPA) in July 2016 and ‘fraud’ in 2019. The Central Bureau of Investigation (CBI) has registered an FIR against ABG Shipyard Ltd and its directors, including chairman and managing director Rishi Kamlesh Agarwal, in what could be the biggest bank fraud case in the country’s history.

Unfortunately, the authorities, including the banking regulator Reserve Bank (RBI), the government and banks, do not seem to be too concerned.

Between 2014 and 2020, an RBI data analysis would show, the total burden of non-performing loans on banks was nearly 365 percent more than the amount during the previous six years of the United Progressive Alliance (UPA) rule. RBI put the new gross NPAs of public sector banks (PSBs) from 2014-15 to 2019-20 at nearly Rs.18.28 lakh crore, up from around Rs.5 lakh crore from 2008-09 to 2013-14.

PSBs wrote off bad loans worth Rs.6,83,388 crore during 2014-20. It was a massive write-off if compared with the 2008-14 gross amount of Rs.32,109 crore. Usually, banks write off non-performing loans which are over four-year-old as part of their exercise to clean up balance-sheet.

“As borrowers of written-off loans continue to be liable for repayment and the process of recovery of dues in written-off loan accounts continues, write-off does not benefit the borrower,” Union minister Anurag Thakur told Parliament in 2019.

India ranks quite high in the list of major economies such the US, China, Japan, France, Germany, the UK, Israel, Spain, the Netherlands, Canada, Sweden, Australia, Denmark, Indonesia and Malaysia, among others, in terms of bank NPAs.

According to a Global Economy study based on World Bank data of non-performing loans as percentage of bank loans in 102 countries in 2020, India’s was recorded at eight percent.

However, RBI has lately forecast that the rate of banks’ bad loans will increase to 9.8 percent by March 2022 under the baseline scenario and to 11.22 percent under a severe stress scenario.

The forecast is quite alarming compared with the Global Economy-listed figures of countries such as China (1.84 percent), Malaysia (1.57 percent), Indonesia (2.75 percent), Australia (1.11 percent), the UK (1.22 percent), Israel (1.48 percent), Canada (0.53 percent), Sweden (0.51 percent) and the USA (1.07 percent).

In 2017, the NDA government promulgated an ordinance to amend the Banking Act, which was subsequently passed by Parliament, giving RBI more powers to tackle the problem of Indian banks clogged under the burden of Rs.9.64 trillion of NPAs. However, the problem persists as the latest RBI forecast suggests.

Little is reported officially about the role of India’s large business houses in big bank frauds and continuously growing NPAs. This is despite the fact that an overwhelming percentage of bad loans are on account of big business borrowers.

While genuine and small defaulters are punished regularly, bullied by bank-engaged private musclemen or bouncers for loan recovery and their personal assets are seized, big business defaulters often go scot free. Many take shelter outside the country.

Three years ago, this government asked banks to provide passport details of people associated with soured loans of more than Rs.50 crore.

In the case of ABG Shipyard, the lenders obviously failed to properly assess the chances of revival before agreeing to the loan restructure. Who were the assessors? Did they act under political or other external pressure? Why fresh look out notices against the fraudsters now?

During the financial year 2019-20, the lender banks declared the ABG Shipyard account as ‘fraud’. Why did it take this long for CBI to file FIR against the directors of ABG Shipyard and ABG International Private Limited? What prevented the arrest of the offenders?

Interestingly, many of the big bank defaulters are NRIs though they live mostly on India-based business operations. A good number of them have multiple passports and residences in tax havens. The law and the legal system seem to be soft on them in India compared to those in North America, Europe and Asia.

Diamantaire Mehul Choksi has been happily hiding in Antigua and Barbuda since 2018 after leaving India. Nirav Modi, nephew of Mehul Choksi, continues to cool his heels in a UK jail as he is afraid of ‘poor conditions’ of Indian jails.

Vijay Mallya, a big bank fraud accused in India, has been living in the UK ever since he managed to leave the country on March 2, 2016. Banks are still anxiously awaiting Mallya's extradition with the hope that the money they lent to the former Kingfisher boss will be returned to them.

In advanced countries, bank fraud is regarded as a felony. In the US, conviction for bank fraud carries imprisonment of up to 30 years and/or a fine of up to $1 million.

Many feel that collusion among top bank officials, powerful political bosses and rampant nepotism has allowed big businesses to loot India's banking system. According to a list compiled by All India Bank Employees Association, the largest body of bank employees, 17 public sector banks had, as on September 30, 2019, a total of 2,426 wilful-defaulter loan accounts worth Rs.1.5 lakh crore.

Those wilful defaulters included ABG Shipyard, Kingfisher Airlines, Rotomac, Nakshatra Brands, Amtek Auto, Diamond Power Infrastructure, Siddhi Vinayak Logistics, Deccan Chronicle Holdings, Ashapura Garments, Electrotherm India, Nakoda, VMC Systems, Varun Industries, Zoom Developers, among several others.

These are accounts where borrowers are not willing to pay despite their having a repayment capacity to a substantial extent. Hence, an element of criminality undoubtedly exists. After all, banks are dealing with public money.

(IPA Service)

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