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Ramdev International fraud: Why did SBI, other lenders wait for 4 long years to move CBI?

An obscure Delhi-based rice producer defaulted on loans worth more than Rs 400 crore, but lenders were painfully slow in swinging to action.

May 20, 2020 / 08:10 AM IST

Little is known about Ramdev International. The registered address is in Sector 17, Rohini in New Delhi. Despite the flashy label, the company has no website. Ramdev makes — used to rather — grain mill products, starches and starch products.

Details are hard to come by, but one can gather from the Ministry of Corporate Affairs (MCA) website that the company was incorporated on April 5, 2004 with an authorised share capital of Rs 5 crore and paid-up capital of Rs 4.3 crore. The Balance Sheet was last filed on March 31, 2014 and the Annual General Meeting (AGM) last held on September 29, 2014.

To use an analogy drawn from its business, it is a ‘needle in a haystack’ kind of company. But all of a sudden, Ramdev International has been thrust into the limelight because for some mysterious reason, despite its obscurity, the company’s credentials were good enough for six banks, including State Bank of India (SBI) — India’s largest — to lend to the promoters generously six years ago. The Rs 414-crore loan SBI and five other banks offered to Ramdev International for business expansion turned an NPA (non-performing assets) on January 27, 2016.

Not a measly amount, by any stretch of imagination. Yet, SBI and other banks moved the Central Bureau of Investigation (CBI) with a complaint only early this year--on February 25. That’s four years after the lenders discovered foul play in the account and the conduct of its promoters.

While the story of Ramdev International is emblematic of the ugly banking sector mess, there are eerie parallels with the shenanigans of liquor tycoon Vijay Mallya.


Not only did SBI and the other lenders wait four years to classify the account as fraud, they also moved painfully slow to seek legal action against its promoters— Naresh Kumar, Suresh Kumar and Sangita. When a complaint was finally filed with the CBI against the three, the bankers found they had fled the country around a year ago. To give the bankers the benefit of doubt, banks discovered about their escape a little late. But why did they wait until February to file a complaint?

SBI is yet to respond to a detailed email questionnaire sent by Moneycontrol on May 14 enquiring about the bank’s delay in moving the CBI to report the fraud.

Twist in the tale

The CBI is investigating the Kumars and Sangita for allegedly defrauding the six banks and fudging accounts. Of the Rs 414 crore, SBI lent Rs173 crore to Ramdev International, Canara Bank disbursed Rs 76.09 crore, Union Bank of India Rs 64.31 crore, Central Bank of India Rs 51.31 crore, Corporation Bank Rs 36.91 crore and IDBI Bank Rs 12.27 crore. The CBI noted that all three promoters escaped to safer pastures long before SBI moved the CBI with the complaint of fraud and default.

Bankers that Moneycontrol spoke to said besides rice milling plants, Ramdev also has offices in Saudi Arabia and Dubai for trading business. They did not want to be named.

How the events unfolded

The Ramdev International account was a typical corporate borrower default case for SBI and other banks until August 2016. Most companies involved in the business of paddy procurement and processing were reporting losses on account of the high procurement cost and low receivables.

A team of lenders decided to swing into action that month, seven months after the account turned NPA. They inspected the company premises.

According to SBI’s complaint to CBI, when the inspection team landed at the factory premises, all that they found was Haryana Police Security Guards roaming the premises. “On enquiry, (we came to know) that the borrowers are absconding and have left the country," says the SBI complaint.

The borrowers had removed the entire machinery from the old plant and fudged the Balance Sheet in order to unlawfully gain at the cost of banks' funds. It didn’t take much time for the bankers to realise they were duped.

Remember, this incident happened in 2016. The visit to the premises should have given enough warning bells that something was seriously amiss. But it took another three years, according to the bank’s complaint to CBI, for the lenders to confirm the missing status of the Kumars.

What explains the inordinate delay by SBI and other lenders to report the fraud? Did the delay on the part of banks help the promoters leave the country before investigators could arrest them?

Why did the banks delay action?

According to a senior bank executive, banks typically delay reporting fraud even after sufficient evidence to avoid sudden one-time provisions.

“If an account becomes NPA, you need to make partial provisions depending up on the class of the asset. In most cases, this could start from 15 percent. But if the account is reported as fraud, this will be a 100 percent upfront provision. If you report fraud after a few years, the provisioning can be spread across a period; hence less impact on books,” said the banker who requested anonymity.

Did SBI delay reporting the fraud and filing the complaint with CBI for this reason? The article will be updated when SBI responds.

Vijay Mallya déjà vu

In many ways, the similarities between the Ramdev International case and the infamous Vijay Mallya case are stark. By the time SBI and other banks moved Supreme Court in 2016, Mallya had left the country (on March 2) to the UK after defaulting Rs 9,000 crore disbursed by 17 banks, including SBI, to his defunct Kingfisher Airline.

Banks had clearly acted late in the case. The Kingfisher Airlines account had tuned NPA in 2012. Even after four years, banks are still struggling to get Mallya back though he has offered to pay.

The NPA mess has broken the back of India’s banking system. Yet, the episodes of Ramdev International and Kingfisher show unscrupulous promoters still have hope of receiving a free rein from negligent bankers.
Dinesh Unnikrishnan
first published: May 19, 2020 07:34 pm
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