RBI takes aim at defaulters

 Shantanu Guha Ray 

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The central bank chief, Raghuram Rajan, hopes to recover at least a part of `22,500 crore

India’s top banker, it is rumoured in Delhi’s corridors of power, is on a hyperbole to recover the lost cash of India’s nationalised banks and even set a deadline for the same.

Raghuram Rajan, the suave chief of the Mumbai-based Reserve Bank of India, has roped in the Prime Minister’s Office (PMO) because he feels that is the best way to get some “genuine action” in solving India’s 10 biggest bank frauds. What is interesting is these defaulters are all prominent real estate, media and diamond firms, all probed by the Central Bureau of Investigation (CBI), the country’s premier investigating agency.

Rajan, who has the Enforcement Directorate (ED) and Directorate of Revenue Intelligence (DRI) on his side, knows that the defaulters will hide in their high-value legal glasshouses and avoid paying up. But Rajan cannot let the banks slow down their pace of recovery to let the fraudsters off the hook.

The cash lost is huge, pegged at about Rs22,500 crore, almost the same amount New Delhi hopes to get from selling 10 per cent stake in the Kolkata-based Coal India, or the cash state-owned Oil and Natural Gas Corporation Limited (ONGC) is keeping as reserve for international investments in hydrocarbon projects.

All these high-value frauds happened in the last decade, thereby triggering a mammoth rise in non-performing assets (NPAs), which stood at Rs2,60,531 crore for PSU banks last December. What is worrisome is that these top defaulters — let’s take the first 30 on the list — account for a little over one third of these bad loans.

The PMO, happy at Rajan’s proactiveness to close the files, has asked the department of financial services in the ministry of finance to raise the matter with Ajit Kumar Seth, the cabinet secretary.

Seth, it is reliably learnt, is in favour of initiating structural changes needed in fraud reporting and install a mechanism for coordinating and pursuing large-value banking frauds. Seth was at the forefront of the recent PMO move for setting up a high level committee to set standard operating procedures to be followed by all agencies for a robust anti-fraud banking mechanism.

The move was pushed after the PMO noticed the banks were not very forthcoming in releasing data pertaining to bad loans and that — in 2014 — it was the All India Bank Employees Association (AIBEA) which released a list of defaulters to the media to highlight what they called was a growing concern among all PSU banks.

Rajan is hoping to recover — if not all — some of the lost cash. He has furnished the PMO with names of several companies, Winsome Diamond and Jewellery, Zoom Developers, Tiwari Group, Surya Vinayak Industries, Deccan Chronicle Holdings, First Leasing Company of India, Biolor Industries, Surya Pharmaceuticals, Prime Impex & Prime Pulses and one Shivraj Puri.

High on the list is Kingfisher Airlines, which has already told New Delhi (read RBI) that it is in no condition to pay Rs7000 crores it owes to various banks and corporate entities. Rajan will have to pull out a rabbit to solve the Kingfisher puzzle. The Kingfisher story — probably because of its calender girls, swashbuckling cricketers and hip-hop parties — has found enough media space; a publishing house even did a book on Vijay Mallya, once called The King of Good Times.

But the PMO — it is reliably learnt — is keen to probe the rest, especially the country’s second largest bank loan defaulter. And it is because there are enough suspicions that there was a criminal conspiracy to defraud Indian PSU banks a whopping Rs6,500 crore and cash taken out of India or diverted to other projects.

The PMO and finance ministry are unanimous that the company, Winsome Group, which is into diamond trading, has given a bad name to a trade that has — in the last two decades — been a source of pride within the country and has also brought international acclaim for India. Global experts have claimed that New Delhi and Beijing are the future stars of the world solitaire trade. New Delhi, under such circumstances, is not keen to tarnish the reputation of the industry because of a few rotten apples.

Winsome has accumulated defaults of an estimated Rs6,581 crore on loans from a consortium of 15 public sector banks, the cash split among three group companies Winsome Diamond & Jewellers (Rs4,366 crore) Forever Precious Diamond and Jewelry (Rs1,932 crore) and Suraj Diamonds (Rs283 crore).

The group repeatedly ignored notices sent by the banks, which — eventually — declared it a wilful defaulter and finally declared the loan as NPA. The Central Vigilance Commission (CVC) referred the case to CBI for criminal investigation.

Winsome promoter Jatin Mehta argued that his gold buyers — bulk of them with common ownership — in the UAE defaulted on payments because they suffered losses of $1 billion in derivatives and commodities trading. But no one is buying his story in India, especially after the PMO has gathered evidence as to how banks, customs department and financial regulatory bodies “deliberately overlooked” the Winsome files for long. Worse, there is evidence with the CBI and PMO that companies described by Winsome as its international distributors were actually white-washing laundering outfits — letter box companies — owned by Mehta and family. The CBI also has evidence that the distributors do not have any collective capability to lose a billion dollars, as claimed by Winsome. It is clear to the country’s premier investigating agency that Winsome may not have provided such large-scale credit to its distributors. Worse, it may not have shipped the gold as claimed.

It is clear loans from Indian banks were diverted to promote synthetic diamonds and real estate businesses in Mumbai and Dubai by Mehta, who is now suspected to be in Singapore. But Rajan is smart. On paper, he is worried that the banks will lose loads of cash because the collateral security provided by Winsome is only Rs250 crore, grossly inadequate to service the loans. But, in reality, he knows Mehta has already coughed up a big chunk of the cash he had swindled from Standard Chartered and even admitted his guilt. Rajan’s theory is simple. If Standard Chartered can recover the cash and secure hard collateral on some of the funds Mehta still owed to it, why should Indian banks be left behind?

The writer is the India Editor for