RBI vs RBI: Let the Real Regulator Stand Up and Be Counted!
Kramer Vs Kramer was a classic film of the late-1970s, a court drama of divorce and its impact on the couple’ young son, starring Dustin Hoffman, a charming and genteel artist. 
 
Reserve Bank of India (RBI) vs RBI is not a 105 minutes movie but a serial that seeks to rival Raghuvamsa, a fifth century panegyric of 124 kings of the Surya dynasty, of whom Rama. the 67th one was the most famous!
 
Just as Kramer Vs Kramer was explicating the impact of the divorce on the child, RBI vs RBI affects neither of the contending parties but perhaps only a billion helpless citizens!
 
But why this title? Is it just sensationalism? Do spend the next few minutes and cross the 1200-word text to crack the code!
 
RBI is venerated for never having let India become another Argentina or Venezuela or any of the Asian tigers that were felled by the mid-1990s crisis of foreign exchange. It also held the reins capably during the global meltdown of 2008 even though the malady did not come our way.
 
But how robust is its record since 2008, when the world learnt by proxy the lessons of the debt binge of the financial sector that ripped through the Western world and almost ended a post-war era of high growth and a quite unimaginable step up in the standard of living? 
 
Rather poor and patchy, I am afraid, and the governors, who have been at the helm since, possessing great academic and administrative distinctions, did not seem to count for much in risk assessment and risk management.
 
RBI has been stealing the show on the glamorous aspect of managing a burgeoning foreign reserve, which the liberalisation of 1991 brought in its wake, and of keeping inflation under control, thanks to the global commodity boom and low-cost Chinese goods that kept the global prices of most basic materials quite low.
 
But as a parent in overseeing its wards, which are the banks and the shadow banks, it has been rather delinquent without going through any divorce itself!
 
The performance of many of the banks, both public and private and their cousins the non-banking finance companies (NBFCs) in the last decade, is a saga of criminal negligence and, in many cases, of the active crime of siphoning out money or act as an accomplice to that task. It should never have been difficult to spot this, if not at the first instance but certainly well before the problem reached the terminal stage.
 
The advent of the insolvency law in 2016 became a convenient shelter to distance both the regulator and the actors from the direct responsibility of acquiescing in settlements that would shock the conscience of the worst fraudster in the world.
 
The committee of creditors (CoC), which one can unscramble as ‘cabal of conspirators’ is an amorphous and anonymous animal that answers to no allegation of individual villainy!
 
The latest resolution of the Videocon group with a princely Rs2,900 crore settlement over a few years against the total bank loans of Rs43,000 crore is a perverse tribute to the ability of the promoter to have managed an impossible level of value destruction right under the nose of more than a dozen watchdogs, that include the regulators of different colours, the auditors, independent directors and so many other agencies like the credit rating agencies.
 
Videocon may not be the unique one, but must be at the very top in that and its loans schedule in the annual report reads like a veritable telephone directory of banks! Not a single name is missing! None of them has made the slightest effort to understand the motive of the promoter, nor the ultimate overseer, RBI!
 
The tax benefit of past losses of Videocon alone should be thrice the settlement amount offered by the acquirer and agreed to by the CoC!
 
Dewan Housing Finance Ltd (DHFL) represents another milestone in the evolution of the Insolvency and Bankruptcy Code (IBC)! It is the first NBFC to enter the stage and the maiden case where direct public debt investors were exposed to the IBC.  
 
This has seen every possible twist and turn, such as a TV soap, and ultimately a case in the Supreme Court by the shareholders on the delisting and cancellation of shares.
 
The promoter systematically siphoned out money but enjoyed the confidence of the credit rating agencies and the auditors to present a formidable façade of high growth and high profit, until an online agency blew the whistle. 
 
Two distinguished regulators, namely RBI and the National Housing Bank (NHB), were directly overseeing this, besides the dozen-odd banks as lenders monitoring the performance.
 
Finally, a dubious outcome called a resolution, where the public get treated at par with the banks, who should actually be tried for criminal negligence and paid nothing!
 
A 60% loss in the assets of a housing finance company has perhaps set the benchmark globally for fraud and cunning!
 
Yet another case where the acquirer smiles his way to the bank (an inopportune simile) with a deferred tax asset in the books, almost equal to the immediate payout assumed!
 
Just as the road to hell is littered with good intentions, the road to successful resolutions is paved with haircuts and shaves of almost 80% at an overall level.
 
There are other interesting tales of chivalry of the banking system, captained by RBI!
 
Ruchi Soya Industries Ltd, which was rescued by the famed alchemist of the land with just a little over 70% loss to the lenders, has magically transformed itself in less than about 18 months and the alchemist has actually extracted gold out of soya beans!
 
The Rs4,350 crore that banks lent to the acquirer to repay 30% of their own original loans to Ruchi Soya, will now be repaid by a public float of the identical amount, with the whisper of an enterprise valuation of approximately Rs20,000 crore.
 
Why not handover all sick units to the alchemist? I am not suggesting, mind you, handing over RBI in this process! (Read: State Bank Lends Rs1,200 Crore to Patanjali to buy Ruchi Soya, Despite Zero recovery and Rs746 Crore Write Off)
 
IBC drama is yet to be embellished by some of the high-profile cases of frauds, the leading one being Infrastructure Leasing & Financial Services (IL&FS), which has set unattainable standards in conspiracy, criminality, collusion, and coercion of credit rating agencies and the auditors by the chief executive officer (CEO).
 
This is perhaps breaking new grounds in corporate frauds with an American flavour of a professional CEO with impeccable academic credentials leading the charge which is typically the domain of promoters with access to the right powers! (Read: IL&FS Mess: Grant Thornton Forensic Audit Exposes Manipulative Nexus Between Key Employees and Credit Rating Agencies)
 
But recent reports indicate that the modus operandi of the MBA qualified CEO was not very different from the most basic algorithm of making politicians and bureaucrats the silent partners of the business.
 
Waiting in queue are the king of good times and the like who are sojourning in exotic locations and matching the sovereign power to stone wall repatriation or deportation with the best legal aid.
Should IBC open additional benches in Tihar and Arthur Road? Am I being too optimistic?
 
But why the title of RBI vs RBI?
 
Is it my unyielding fancy for Hoffman and Streep in Kramer?
 
Or a meaningless sensation to malign the old lady of our own Threadneedle street in Bombay?
 
NO!
 
It is an unequal battle of the -
 
Robber Barons of India vs the Reserve Bank of India!
 
Just that the battle has become more unequal with the passage of years!
 
Suit-Boot, Loot & Scoot!!
 
 
 (The author is a CA and CS and retired as a partner at EY, Chennai heading tax and regulatory advice.)  
 
Comments
Kamal Garg
3 months ago
Each and every word said is correct. See the horrendous way of looting the public at large, for decades on, by all successive regulators and governments. Dissenting ones are sidelined....period.

It looks like a real IBC scam is going on in this country, otherwise how can you approve a resolution where the deferred tax credit is more than the resolution amount and how can the resolution amount is based upon the worst recovery possible and with all future recovery going to the successful company and in the end, may be the final amount paid/payable under the process would be zero or even negative, leaving the shareholders and creditors in the lurch.
Kamal Garg
3 months ago
Each and every word said is correct. See the horrendous way of looting the public at large, for decades on, by all successive regulators and governments. Dissenting ones are sidelined....period.

It looks like a real IBC scam is going on in this country, otherwise how can you approve a resolution where the deferred tax credit is more than the resolution amount and how can the resolution amount is based upon the worst recovery possible and with all future recovery going to the successful company and in the end, may be the final amount paid/payable under the process would be zero or even negative, leaving the shareholders and creditors in the lurch.
Meenal Mamdani
3 months ago
This level of malfeasance is not possible without Finance Ministry officials participating in the loot.

We know that the current RBI governor is a handpicked individual who will carry out all the wishes of PM. He got rid of the 2 previous RBI governors because they would not carry out PM's orders.

Yet, I don't think the 2 previous governors and the slew before them indicated how much rot was in the system. Did they not know? If yes, why were they in the dark? Have all the officials in RBI stopped doing their work so that what information is easily available to the writer of this article as well as numerous other writers, is not available to these trained officials?
If these subordinates have been bringing this data to the top people in RBI, is there a paper trail that points to who makes the decisions to ignore the criminal acts?
If there is no trust in the system, the whole edifice may collapse.
Meenal Mamdani
3 months ago
This level of malfeasance is not possible without Finance Ministry officials participating in the loot.

We know that the current RBI governor is a handpicked individual who will carry out all the wishes of PM Modi. He got rid of the 2 previous RBI governors because they would not carry out PM's orders.

Yet, I don't think the 2 previous governors and the slew before them indicated how much rot was in the system. Did they not know? If yes, why were they in the dark? Have all the officials in RBI stopped doing their work so that what information is easily available to the writer of this article as well as numerous other writers, is not available to these trained officials?
If these subordinates have been bringing this data to the top people in RBI, is there a paper trail that points to who makes the decisions to ignore the criminal acts?
If there is no trust in the system, the whole edifice may collapse.
Kamal Garg
Replied to Meenal Mamdani comment 3 months ago
Absolutely correct. No body cares. And the loot goes on unabashedly.
S.SuchindranathAiyer
3 months ago
A good attempt at answering the question, "What is the track record of Command Economy Babus (Satraps) in regulating a "liberated" economy?":
S.SuchindranathAiyer
3 months ago
A good attempt at answering the question, "What is the track record of Command Economy Babus (Satraps) in regulating a "liberated" economy?":
S.SuchindranathAiyer
3 months ago
A good attempt at answering the question, "What is the track record of Command Economy Babus (Satraps) in regulating a "liberated" economy?":
parimalshah1
3 months ago
Regulators are usually sleeping on the wheel and the drive s on auto mode. Only accidents make them wake up and take notice. Pathetic.
Sushil Bubna
3 months ago
keep on
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