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No Deterrence Yet To High-Profile Frauds

AMIDST allegations of soft pedalling of cases involving Vijay Mallya, Mehul Choksi and Nirav Modi, the Central Bureau of Investigation is likely to file the second chargesheet in the scam involving Mallya. The CBI had filed a chargesheet against Mallya last year in connection with Rs 900-crore loan sanctioned by Industrial Development Bank of India (IDBI) in which senior officials of the bank were allegedly involved. The CBI is likely to name as accused many senior bank officials who had dealt with loans to Mallya’s Kingfisher Airlines. The chargesheet pertains to loans of over Rs 6,000 crore given to Kingfisher by a consortium of 17 banks led by the State Bank of India. The CBI has registered two cases against Mallya in cases related to IDBI loans in 2015 and consortium loan in 2016. It is said to have completed the probe into loans given by a consortium of banks. The chargesheet would be filed within a month, keeping the investigation open so that no loopholes are left to help Mallya wriggle out of the case.

The CBI has investigated the role of serving and retired senior officials of the banks including the SBI who had handled Kingfisher Airlines loans. Based on the evidence gathered, it is going to name them as accused. The CBI is also looking into the role of finance ministry officials who could have influenced the decision of the bankers. The CBI has gathered enough evidence to show that Mallya diverted the loan funds from the purpose for which they were given. It has also found out that the bankers went out of their way to meet the loan demands of the liquor baron, disregarding banking norms. Top officials of some banks seemed to be too interested in sanctioning loans to high profile fraudsters for over a decade. It was only when NPAs spiked sharply, eroding the stability of the banks, that their boards of directors were forced to act and categorize bad loans as bad loans. Had the bank chief executive officers and other senior officials practised honest ways, strict norms and due diligence they could have stopped loans going bad. It is necessary that the cases against senior bank officials are taken to the logical end; those involved must be made to pay the price for their connivance and allegedly quid pro quos.

The country has witnessed high-profile banking frauds in quick succession in the recent past. While Mallya’s case came up in the public domain in 2015, the Mehul Choksi and Nirav Modi cases surfaced in 2016 and cognizance was taken only in 2018. The uncle-nephew duo owes the banks in excess of Rs 13,000 crore. There are other cases of banking frauds. While the cases are being hotly debated in the country, the statement made by Mallya outside a London court that he met Finance Minister Arun Jaitley before leaving for London suggested the government helped him flee the country. Mehul Choksi and Nirav Modi too escaped easily. The government and the CBI and other agencies investigating their cases could have prevented the flight of these high-profile fraudsters. Delayed action and soft pedalling on filing of chargesheets only reinforce the doubts about the intentions of the investigating agencies as well as of the government leadership.

Even as the issues of high-profile fraudsters fleeing the country is hotly debated, former Governor of Reserve Bank of India Raghuram Rajan triggered an acrimonious exchange between the Congress and BJP with his revelation that he had told a Parliamentary panel that he had given the list of those involved in high-profile fraud cases to the Prime Minister’s Office urging exemplary action against at least one or two. Rajan also told the panel that the seeds of the NPA problem were sown between 2006 and 2008. The former RBI Governor also pointed out that there were fundamental flaws in the banking architecture, particularly the lack of incentives to bank heads to be transparent about NPAs, and governance challenges in public sector banks. According to him, the problems have remained unresolved for too long. The lack of action by the central government on the high-profile bank fraud cases suggests that the political leadership is not interested in going all out against the many fraudsters who have fled the country or are residing in the country with full confidence there would be no action taken against them. It shows that the government does not want to enforce a regime of deterrence for high-profile bank frauds. That is a very dangerous approach, for the banks might become destabilized as a result of unbridled deliberate default.

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