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5 promoters who left Indian banks high and dry

Banks have little hope of getting their money back from these businessmen who, after borrowing thousands of crores from these banks and defrauding them, fled the country

August 26, 2020 / 07:26 AM IST
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In recent years, Indian banks have learned some hard lessons in corporate loan business from wily promoters. These promoters, after defaulting thousands of crores worth loans from these banks, have fled the country to never return. In most of these cases, some or other fraudulent transactions are involved. Investigators are examining the dirty deals involving these businessmen. Attempts for extradition are on.

But at the end of the day, banks have little hope in getting their money back.

A major chunk of the bad loans or written off loans in the Indian banking sector is money lent to wilful defaulters or promoters who have the ability to pay back to banks but wouldn’t do so willingly. They have deep pockets and an army of lawyers to wage a battle with lenders in court rooms that goes on for years.

Some of these businessman are powerful enough even to buy citizenship in tax havens.

Time and again, powerful promoters have dragged Indian banks to court rooms. Banks have also suffered huge losses on account of frauds committed by corporate-banker nexus.

Here’s a look at the five top cases of bank loan default or bank frauds. What is common in all these cases is that promoters have long left the country:

- Vijay Mallya-Kingfisher caseIt’s been more than four years since liquor baron Vijay Mallya, who defaulted over Rs 9,000 crore loans to a clutch of Indian banks led by State Bank of India (SBI) left the country.

On Mach 2 2016, Mallya took a flight to London “to be closer with his family.” The timing of his trip raised suspicion as it was just hours ahead the bank consortium moved to the Supreme Court seeking his detention and seeking repayment.

How did Mallya get to know just at the right time that banks will soon move to SC? Mallya has, since then, promised to pay back the principal amount to banks several times on Twitter. But, banks have not taken up this offer seriously. They argue that the actual amount is much higher taking into account the accrued interest component. Mallya doesn’t seem to agree.

Current status:  Banks have, till date, not made any meaningful recovery in this case. True, banks have auctioned some personal assets of Mallya including the Kingfisher Vila in Goa. But, lenders have recovered only a pittance so far (banks got just Rs 73 crore from the Kingfisher Villa sale). The legal battle to get Mallya back to India is still on. There is no certainty on when Mallya will be back. On July 23, UK said it cannot set a timeline for Mallya’s extradition.

All that is left for banks now in Vjay Mallya case is hope.

- Nirav Modi-PNB fraudOn February 14, 2018, the Indian banking sector was rocked by an enormous bank fraud, the modus operandi of which was unheard until then. That day, Punjab National Bank (PNB) disclosed a Rs 11,400 crore fraud at one of its Mumbai branches.

The bank filed a complaint with the Central Bureau of Investigation (CBI) saying billionaire jeweller Nirav Modi connived with some of its officials to defraud the bank using fake bank guarantees. Fake letters of undertakings (LoUs) were created to draw money from foreign branches of Indian banks on behalf of Indian banks linked to Modi and the Gitanjali Group.

LoUs are basically bank guarantees that assure banks that issuing bank will pay up if the company, for whom the LoU is issued, defaults.

Current status:Like Mallya, Modi too left the country just before bank disclosed the scam. He is believed to have left India in January 2018 while PNB announced the scam a month later, in February. In March 2019, Modi was arrested in London and is in custody since then.

In an exclusive interview with Moneycontrol in April, PNB Managing Director and CEO Mallikarjuna Rao said the bank has not recovered anything significant from the Nirav Modi scam.

“So far, nothing. Only thing is that assets worth Rs 1,000 crore has been confiscated by the CBI recently. They have given permission to us to apply to the courts for the sale of these properties. We have already done that. But there are some legal hurdles before we go for the auction,” Rao said. However, impact in the balance sheet has been addressed fully because we have provided (for the losses) fully, Rao said.

- Mehul Choksi, Gitanjali GemsAlong with Modi, Mehul Choksi is also a key accused in the PNB scam. Like his nephew, Choksi too left India around the same time in February 2018. Choksi later became a citizen of Antigua and Barbuda under a programme in which a certain quantum of investment entitles an individual to citizenship. A recent charge sheet by the Enforcement Directorate (ED) named Choksi as a person who ran an organised racket to cheat customers and lenders across India, Dubai and US. Choksi claims he flew out of the country for medical reasons while investigators claim he left to avoid arrest.

Current status: Here too, banks haven’t made any significant recoveries from the PNB fraud yet. Attempts to extradite Choksi and his nephew is still on.

- Jatin Mehta, Winsome DiamondsJatin Mehta-promoted Winsome Diamonds is another big corporate loan defaulter to Indian banks. The company and its subsidiaries owe around Rs 10,000 crore to a consortium of Indian banks, including PNB. According to investigators, Mehta left India in 2013 to become a citizen of Saint Kitts and Nevis, a Caribbean nation. Winsome Diamonds name is tagged as wilful defaulter by leading Indian banks.

Current status: There is no major recovery yet from Winsome account for banks.

- The Sandesaras of Sterling BiotechNtin Sandesara, Chetan Sndesara and Deepti Sandesara are the promoters of Sterling Biotech, which is a major corporate loan defaulters to banks, including Indian Overseas Bank. The amount involved, over Rs 15,000 crore, in the alleged loan scam is much bigger than the Nirav Modi-PNB scam.

Investigations have revealed that the promoters not only diverted funds thorough layered transactions, but also allegedly used funds for personal purposes. On June 27, the ED had attached properties worth Rs 9,778 crore of SBL/Sandesara Group in the aforesaid bank fraud case.

Current status: The investigations are on. Promoters are believed to be abroad. Banks still are awaiting their money back. No major recovery yet.

What do bankers say?Naresh Malhotra, a senior banking consultant and a former banker with SBI, said banks can do nothing much in these cases except to continue with the legal process. “There are very little chances of any recovery from these accounts,” he said.

What should banks do in future cases?
“At the time of giving a big corporate loan, banks should insist for an affidavit from the promoter about all the passports he holds. Typically, banks only insist for Indian passports, but as we have seen in all these cases, fraudsters carry multiple passports and later use it to hide from Indian laws,” said Malhotra.

Another senior banker, who didn’t want to be named, said the political-corporate nexus too come into the help of promoters to escape prompt legal action. “Banks should be given a free hand to deal with recovery in such cases,” said the banker.

Rating agencies are often caught by surprise when a major loan default or a fraud happens. “What can a rating agency do?  These are matters of law and order,” said a senior official of a rating agency.

According to a list compiled by All India Bank Employees Association (AIBEA), the largest body of bank employees in India, 17 public sector banks, as on September 30, 2019, have a total of 2,426 wilful defaulter loan accounts aggregating to Rs 1.5 lakh crore. These are accounts where borrowers are not willing to pay despite having the repayment capacity. Hence, an element of criminality cannot be ruled out. After all, banks are dealing with public money.

Wilful defaulters include Kingfisher Airlines, ABG Shipyard, Rotomac, Nakshatra Brands, Amtek Auto, Gupta Coal India Pvt, Diamond Power Infrastructure, Siddhi Vinayak Logistics, Deccan Chronicle Holdings, Ashapura Garments, Electrotherm India, Nakoda, VMC Systems, Varun Industries, Zoom Developers, among others.

Dinesh Unnikrishnan
Dinesh Unnikrishnan
first published: Aug 25, 2020 06:34 pm