Absence of bond market main reason for India's banking crisis: CAG
The major reason for the crisis being faced by banks is the absence of a developed bond market in the country, the official auditor said on Tuesday.
 
Speaking at the launch of the Indian School of Public Policy here, Comptroller and Auditor General Rajiv Mehrishi maintained that the root-cause of the banking crisis was neither the scams nor the non-performing assets (NPAs) but a result of state-run banks being constrained to lend for long-gestation projects, many of which had stalled due to various factors.
 
"Of course, the thefts, the NPAs have all contributed to the banking crisis, but it originates elsewhere...India has no bond market, so banks have been forced to lend for long-gestation infrastructure projects which have then run into trouble," he said. 
 
"The absence of a bond market has been the major cause of the country's banking crisis." 
 
The gross NPAs in the Indian banking system have accumulated to a staggering Rs 10 lakh crore, around 90 per cent of which is accounted for by state-run banks.
 
"This asset-liability mismatch is due to the lack of debate on public policy in India," the CAG said.
 
On the various scams in public sector banks that have come to light, the national auditor held the banking regulator Reserve Bank of India responsible for the systemic lapses.
 
"What was the regulator doing all this time...is he, or is he not, accountable for the lapses that led to the scams," Mehrishi asked.
 
Industry chamber Assocham said earlier this month that the successful resolution of the NPA issues through the new Insolvency and Bankruptcy Code (IBC) will help deepen India's corporate bond market that is highly concentrated in AAA-rated bonds.
 
Citing its study jointly conducted with rating agency Crisil, the industry chamber had said: "India's corporate bond market, which contributes 17 per cent to the country's GDP and is highly concentrated in the AAA-rated bonds, is expected to change once the IBC brings about successful resolution of stressed assets in a time-bound manner." 
 
It said that countries like Brazil, Russia, China and the UK had taken steps to reform the bankruptcy laws which, along with other structural reforms, led to a significant growth in the corporate bond market within their financial markets.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

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COMMENTS

Ralph Rau

5 months ago

Infrastructure projects have a long gestation period compounded by several uncertainties , public opposition, environmental tangles etc

The cost of funding via publicly issued bonds would make the project unviable ?

ED chargesheets Sterling Biotech's Sandesara brothers in Rs 8,100-cr loan fraud
The Enforcement Directorate on Tuesday filed chargesheet under the anti-money laundering law against Sandesara brothers and their Gujarat-based pharmaceutical company Sterling Biotech Limited (SBL) in the fraudulent Rs 8,100-crore loan from domestic as well as offshore branches of Indian banks during 2004-2012.
 
The ED named 191 accused and 184 companies of the SBL group in the chargesheet filed in a special court. The SBL group include Sterling Biotech Limited, PMT Machines Limited, Sterling SEZ and Infra Limited, Sterling Port Limited, Sterling Oil Resources Limited and 179 shell companies. 
 
Some individuals named in the chargesheet include main promoters of SBL group -- Chetan Jayantilal Sandesara and Nitin Jayantilal Sandesara -- Dipti Sandesara, Rajbhushan Dixit, Hitesh Patel, their chartered accountant Hemant Hathi and middlemen Gagan Dhawan. 
 
The agency said the investigation in this case is still on as Sandesara brothers are learnt to be in abroad. 
 
Action under Fugitive Economic Offenders Law shall be initiated soon against the Sandesara brothers and Red Corner Notice with respect to promoters shall also be issued, said the ED which registered a money laundering case against the SBL group, Sandesara brothers and others in August 2017, days after a case of alleged bank fraud of Rs 5,700 crore was filed against them by the Central Bureau of Investigation. 
 
Investigation in ED revealed that Sandesaras brothers and others hatched a criminal conspiracy for cheating banks by manipulating figures in the balance sheets of their flagship companies and induced banks to sanction higher loans. 
 
"After obtaining loans, the accused diverted the loan funds to non-mandated purposes through a web of shell companies. Thus, the loan funds were diverted, layered and laundered by the promoters for their personal purposes. Total amount of loan fraud as on date is Rs 8,100 crore. The loan fraud pertains to domestic as well as offshore branches of Indian banks," said an ED statement.
 
Loans to the tune of Rs 5,700 crore was disbursed by various banks during the years 2004-2012 and Look Out Circulars were opened against the accused in August, 2017, said the statement. 
 
"To fulfil their criminal motive of defrauding banks, the promoters devised a multi layered strategy of cheating. They not only cheated banks but also revenue department as well as the share-holders. Their strategy included incorporation of shell companies, conducting circular transactions to artificially inflate turnover of flagship companies, claiming higher depreciations on non-existing machinery, artificial share trading with the use shell companies, layering and laundering of proceeds of crime within India and abroad through the web of shell companies."
 
The promoters used their employees' names and got incorporated 249 shell companies, said the ED, adding the ill gotten money were knowingly rotated, layered and finally integrated into the financial system and projected as untainted.
 
"The amount was further invested in the form of immovable properties. The loan funds were diverted for non-mandated purposes to shell companies and were withdrawn as cash. An amount of Rs 140 crore was withdrawn from shell companies and were used for the personal purposes of the promoters which also includes bribing of public officials," said the statement.
 
The ED said the promoters created a web of corporate and accounting structure abroad and they incorporated more than 100 entities in various countries including United Arab Emirates, the US, the UK, British Virgin Island, Mauritius, Barbados and Nigeria. 
 
"Their main entities outside India includes Richmond Overseas, Sunshine Trust Corporation, SEEPCO BVI, SEEPCO Nigeria and Atlantic Blue Water Services Pvt Ltd. It is revealed during investigation that the funds were rotated through various structures and ultimately carried to Nigeria to finance their oil business," said the ED.
 
The banks have also found that the sanctioned loans were not used for the laid down purposes but were diverted for non-mandated purposes. 
 
The ED said the banks have also declared the loans to the tune of Rs 8,100 crores as fraud (domestic loans Rs 3,675 crore and foreign loans
Rs 4,425 crore) as on date. 
 
The ED said it has so far arrested four persons in the case including a Delhi-based business man-cum-middleman Gagan Dhawan, Ex-Director of Andhra Bank Anup Garg, Director of SBL R.B. Dixit and Ranjeet Malik, a front man of Dhawan. 
 
Besides, the ED has so far attached assets to the tune of Rs 4,710 crore in the case. 
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

 

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ICICI Bank: Cyril Amarchand Mangaldas Withdraws 2016 Report That Cleared Chanda Kochhar
Well-known law firm Cyril Amarchand Mangaldas has withdrawn its inquiry report of 2016 which had found no evidence of nepotism and conflict of interest on the part of Chanda Kochhar, former managing director (MD) and chief executive (CEO) of ICICI Bank. Using the report, the Bank had closed inquiry in alleged nepotism and conflict of interest on the part of Ms Kochhar while sanctioning loans to Videocon group.
 
In a regulatory filing, ICICI Bank said, "Subsequent to additional whistle-blower allegations and further information made available to the Bank, the board of directors determined the need for a fresh inquiry, which was announced on 30 May 2018. Further, the Bank informed the law firm about the said developments, whereupon the law firm expressed that its earlier report would no longer be valid."
 
ICICI Bank said, during 2016, when there were some media reports about Ms Kochhar's alleged nepotism and conflict of interest, the then chairman of the board of directors engaged a reputed law firm (Cyril Amarchand Mangaldas) for conducting an inquiry into the allegations made in such media report.
 
Ms Kochhar is facing allegations of conflict of interest over a loan to Videocon Group that had, in turn, lent to a company part-owned by her husband, Deepak Kochhar.
 
"All concerned parties (including the Bank) cooperated with the inquiry and furnished necessary records, documents and statements. The law firm submitted its report in December 2016 stating that it had found no evidence of nepotism and conflict of interest on the part of Ms Kochhar and accordingly the matter was treated as closed," the Bank said.
 
Currently, Supreme Court's former judge BN Srikrishna is heading an independent inquiry into the allegations against Ms Kochhar.
 
Quoting a person close to the development, a report from BloombergQuint, says, "At the time the law firm had found no evidence to support the whistleblower’s allegations and hence had cleared Ms Kochhar. But the law firm subsequently discovered that not all facts had been shared with it and hence recently withdrew the report."
 
Earlier this month, Ms Kochhar quit ICICI Bank. The decision of the 56-year-old brings to an end her nine-year reign as the top executive of the Bank. In 2009, Ms Kochhar was appointed as MD and CEO of the Bank and was responsible for the Bank's diverse operations in India and overseas.
 
Her alleged conflict of interest came out in the open in March this year after media reports referred to a Rs3,250-crore loan granted by ICICI Bank to Videocon Group, whose chairman Venugopal Dhoot had business links with her husband Deepak Kochhar. It was alleged that Mr Dhoot transferred a considerable portion of the loan to a company he jointly owned with Mr Kochhar.
 
The media exposé was based on a complaint filed by a whistleblower, who flagged Ms Kochhar's alleged impropriety and conflict of interest in a letter to the prime minister and the finance minister.
 
The Bank initially termed the charges against Ms Kochhar as "malicious and unfounded rumours" but after relentless public gaze, and regulatory pressure, the lender ordered a probe into the whole issue.
 
In 2012, a consortium of 20 banks and financial institutions sanctioned credit facilities to the Videocon Group for a debt consolidation programme and for its oil and gas capital expenditure programme aggregating to about Rs40,000 crore.
 
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COMMENTS

Dr. Rakesh Goyal

5 months ago

The law firm is either consist of incompetent people or favoured Ms Kochar for whatever reasons. Once a report is issued, it is unethical, immoral and illegal to withdraw the report, that too of a extremely serious matter. There must be an inquiry on the conduct of law firm either by Bar Council of India OR by competent authority such as RBI/SEBI/RoC/High-Court.

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