Bank NPAs: RBI governor Raghuram Rajan is running with the hare and hunting with the hound

By Nalini R Mohanty

Liquor baron Vijay Mallya’s escape to London on March 2 has brought back the spotlight on the role of the CBI and the banks for facilitating the escape. The CBI has to explain why it altered the circular issued to the Bureau of Immigration (BoI) at the airports last October asking for the detention of Vijay Mallya if he attempted to flee the country while legal process was being firmed up for recovery of loans to the tune Rs 7000 crore.

Bank NPAs: RBI governor Raghuram Rajan is running with the hare and hunting with the hound

RBI Governor Raghuram Rajan - PTI

A month later, in November, the CBI mysteriously changed the circular from ‘detain’ to merely ‘inform’. That is why, when Vijay Mallya arrived at the airport on March 2 with seven large bags to travel to London First Class, BoI duly informed the CBI but it did not detain him. The CBI, as it has come on record to say, did not ask for detention of Mallya as there was no court order.

Was the CBI under political pressure to make Vijay Mallya’s exit smooth? Or, did it act on its own for extraneous considerations to come to the rescue of Mallya? Why did the CBI chief then specifically mention in a meeting with top bankers at Mumbai the case of Kingfisher (the airline that Mallya owned and that went bust drowning Rs 7,000 crore loans advanced by 17 public sector banks) while pointing to the acts of omission of commission by the bank officials on the very same day Mallya was fleeing to England from Delhi airport?

Was a mere coincidence or are there wheels within the wheels that needs to be unearthed (but then who would investigate the shenanigans of the CBI which is the premier investigative agency of the country?).

While the CBI is under the spotlight for its flip-flop on the Vijay Mallya episode, the public sector banks are the bigger culprits in allowing the likes of Mallya to raise huge loans, divert the money to foreign banks, declare bankruptcy and then enjoy a lavish lifestyle till death (and leave behind enough for the next few generations to lead an equally flashy lifestyle). It is a win-win situation for bankers as well as they point to the economic slowdown as the cause of the failure of the enterprises for which they had lent the taxpayers’ money. Clearly, the bankers do not act without the connivance of the political masters.

The government of the day ensures that these public sector bankers are not held personally accountable for the loss of thousands of crores of public money and the blame for the loss is laid at the door of global economic downturn. See, what both the UPA finance ministers were saying about the NPAs, the NDA finance minister is only reiterating the same while advancing thousands of crores of rupees to recapitalise the ailing public sector banks. When politicians, bankers and fraudsters are in collusion, the common taxpayer is left with no option but to bleed helplessly.

Here comes the role of the RBI. The RBI is supposed to be the regulatory body of the banking sector. The current RBI chief Raghuram Rajan has earned quite a reputation for tough talk. He is supposed to have set in motion a change in the process of the accounting system (adherence to the Basel III norms) to accurately reflect the state of NPAs.

But, surprisingly the tough guy Raghuram Rajan has been fighting shy of taking one step that would rip apart the veil of secrecy that surrounds the top defaulters. The entire manipulation of the lending, defaulting and restructuring of the loan (to the tune of thousands of crores) happens away from the public glare . That is why when Vijay Mallya had defaulted on the interest payment of Rs 6,000 crore lent to him by several banks and his credit rating was very low, still the IDBI advanced him another Rs 900 crore which was also siphoned off. Clearly, the bank officials and their political masters made money in the dealing.

In fact, Vijay Mallya is a comparatively small fry when it comes to Bhushan Steel which had defaulted on the repayment of more than Rs 25,000 crore lent to him by the PSUs when UPA was in power. After the NDA came to power, the ailing company has got another Rs 10,000 crore to resuscitate itself. Clearly, these mega entrepreneurs, with dubious credentials, have the blessings of the entire spectrum of political masters.

But neither the political bosses nor the corrupt bankers would have dared to bankroll a persistent defaulter if the information about the extent of the loan and the default would have been in the public domain. Banks have assiduously opposed any demand for making the list of big borrowers public (so that they could continue to manipulate it for mercenary considerations). If governor Rajan had real intent to stave off the huge loss of the taxpayer’s money, he would have been proactive in making the list of big defaulters public. But he chose not to act on his own.

Even when the Central Information Commission directed the RBI to reveal the names of the top 100 industrialists who had defaulted on loan repayment to public sector banks (CIC said that revealing names would “serve the object of reining in such defaulters, warning citizens about those who they should stay away from in terms of investment and perhaps shaming such persons and entities”).

RBI, however, moved Delhi High Court to challenge the order on grounds that it went against “the cardinal common law principle of the bankers’ duty of confidentiality and the CIC direction to disclose the details of top 100 defaulters was “against the basic tenets of banking.”

RBI governor advanced the same argument when the case came up before the Supreme Court last month leading to the apex court’s following indictment: “RBI is supposed to uphold public interest and not the interest of individual banks. We have surmised that many financial institutions have resorted to such acts which are neither clean nor transparent. The RBI in association with them has been trying to cover up their acts from public scrutiny.”

Mr Raghuram Rajan: the apex court’s verdict on your performance could not have been more damning. You have managed media headlines by your big talk of imposing discipline on the lending system and breaking the back of cronyism, but when it comes to tough action, you have chosen to run with the hare and hunt with the hound.

Mr Governor: you continue to symbolize the long period of regulatory eclipse that has cost the Indian taxpayer Rs 5 lakh crore!

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Updated Date: Mar 14, 2016 15:38:17 IST

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