The Clean-up of Corporate India Seems To Have Begun in Earnest!
Modi Sarkar 1.0 ended its term with a lot of unfulfilled promises and a sense of outrage that large industrialists were getting away with defaults again, the promise of good administration had been forgotten and bad loans, which had spiralled past Rs10 lakh crore, were threatening to sink public sector banks (PSBs). 
 
As we headed into the general elections, the brazen shenanigans of the Sandesaras of Sterling Biotech, the multiple defaults of Anil Ambani, and the manipulation of judicial processes by the Essar group created a sense of crushing disappointment. Added to it, there was a massive ‘shadow banking’ crisis precipitated by the collapse of dubious IL&FS (Infrastructure Leasing & Financial Services), with its deep links to India’s top bureaucrats. 
 
But Modi Sarkar 2.0 has started out on a heartening aggressive note. It is common knowledge that India’s investigative agencies act only when there are clear directions from the prime minister’s office (PMO). The slew of actions by multiple investigation agencies, with quick filing of charges or decisive action to bring back absconding industrialists from the cosy comfort of overseas tax havens, is sending shivers down the spine of Indian industry. 
 
But this clean-up has been long overdue, to restore confidence in the system. At a time like this, it is important to remember some simple numbers published by Prof R Vaidyanathan in his book Indian UnInc., in 2014. While big industry accounts for the bulk of our bad loans, they account for only 18% of India’s gross domestic product (GDP). It is India UnInc., comprising unorganised sector and family businesses that contribute 45% of GDP; and, yet, they pay usurious interest rates. 
 
Similarly, household savings contribute over 70% of our domestic savings, he says. Yet, banks have little respect for depositors, while they write off thousands of crores of rupees to benefit crooked industrialists. So let’s hope the government remains unmoved by the lobbying and pleas of big industry to go easy on them. 
 
Over the past three decades, I have watched various governments, including the previous NDA (National Democratic Alliance) government, dilute and bury major scams after the initial photo-ops and arrests. Weak charge-sheets, incompetent filings and decades of litigation, finally, led to meaningless judgements. 
 
Some investigations just vanished. Ours is a country that could not find out who received kickbacks for the Bofors gun deal or hold anyone responsible for the collapse of Unit Trust of India (UTI). We have also never questioned regulatory failure. 
 
For the first time in decades, we are witnessing decisive follow-up action, whether in the form of filing quick charge-sheets in IL&FS, freezing assets of absconding industrialists or the work done to corner Mehul Choksi, Nirav Modi, Vijay Mallya or the Sandesara family, are examples. It is early days yet; we can only hope that the momentum will not flag over the next five years. There is a lot to do.
 
The breadth of action becomes apparent when one lists these actions. 
 
Regulators, Raters and Auditors: Probably, for the first time ever, the Reserve Bank of India (RBI) has been asked by the SFIO (Serious Fraud Investigation Office) to conduct an internal investigation into lax handling of IL&FS, despite the red-flags raised by its inspection report two years earlier. 
 
On 1st July, the rating agency, ICRA Ltd, sent its managing director and group chief executive officer, Naresh Thakkar, on leave until further notice, based on allegations of fixing ratings. A report on Moneycontrol indicates that CRISIL Ltd lost business to ICRA in 2016 for refusing to fix the credit rating. 
 
If only there were a responsibility cast on CRISIL to report this fact to the regulator, the IL&FS debacle may have been averted. It is, probably, time to make such reporting mandatory.
 
In yet another swift action, the SFIO moved the bankruptcy court on 11th June with a petition to ban two audit firms—Deloitte Haskin & Sells and BSR Associates, statutory auditors for IL&FS Financial Services (IFIN). Deloitte audited IFIN for a decade without raising any red flags (allegedly in exchange for consultancy assignments).  
 
Neeraj Singhal: The promoter of Bhushan Steel (which has been acquired by Tata Steel in one of the earliest and biggest bankruptcy resolutions under the new law) continues to face the heat of relentless investigation and action. Tata Steel paid over Rs32,500 crore to acquire the company; but banks still took a hit of Rs20,000 crore and, hence, the ongoing investigation and recovery effort. 
 
On 1st July, SFIO filed a 70,000 page complaint against the group before a special court at Dwarka. Neeraj Singhal and Nitin Johari, a top executive, were arrested in early May, about a month before the SFIO complaint was filed. They have been charged with fraudulent misuse of letters of credit (LCs), financial misstatements, over-valuing assets to obtain bank credit, fake write-offs and siphoning off over Rs2,000 crore through a network of over 150 companies. 
 
Neeraj Singhal had been arrested by the SFIO even in August 2018 and released on bail, even though he was arrested by the Central Bureau of Investigation (CBI) in 2014, when he was caught bribing the Syndicate Bank chairman.
 
Sterling Biotech: On 26th June, the Enforcement Directorate (ED) attached the overseas assets worth Rs9,778 crore of Sterling Biotech which, along with previous attachments, now aggregates Rs14,508 crore of assets attached. This includes oil rigs, ships, aircraft, oil-fields and property registered in multiple countries. 
 
Since the promoters are understood to be hiding in Nigeria, where they have a sprawling business empire (while they failed to pay Indian banks), these attachments could deal a hard blow to the wealth stashed overseas. The Sandesara group is understood to have laundered this money through shell companies and fraudulent standby LCs of Rs4,500 crore. 
 
A consortium of banks, led by Andhra Bank, wants to accept a 45% settlement offered by the absconding promoters and withdraw two defaulting companies of the Sterling group (Sterling Biotech and Sterling SEZ) from bankruptcy proceedings. The ED had strenuously objected to the withdrawal. 
 
On 1st July, the ED indicated that it plans to expand this probe to the film industry, with which the star-struck promoters had close ties. The investigation could also lead to a top public sector bank chief and a powerful political family from Mumbai. This brazen misuse of LCs and bank credit would not have been possible without the active collusion of top bankers. In fact, Moneylife has documents from whistle-blowers that could indict some bankers.
 
Nirav Modi and Mehul Choksi: The action against Nirav Modi, the once high-flying jeweller who scooted after drilling a Rs13,700 crore hole in bank books, is relentless. While he remains incarcerated in London following government action, his assets in India have been attached and auctioned. Government agencies are now going after his overseas assets, built with funds siphoned from Indian banks. They have managed to get the Singapore High Court to order the freezing of a bank account of Nirav’s sister, Purvi Modi, and her husband with Rs44 crore.
 
Meanwhile Mehul Choksi, of Gitanjali Diamonds, who surrendered his Indian passport and acquired Antiguan citizenship, is also likely to face extradition. Mr Choksi owed over Rs14,000 crore to Punjab National Bank and, like Nirav Modi, had duped it through LC fraud. 
 
The prime minister of Antigua has reportedly indicated that Mr Choksi would lose his newly acquired citizenship of that country and be repatriated to India. Mr Choksi, in long distance interviews, continues to blame the Bank. If he spills the beans on how the Bank colluded with him, hopefully some negligent bankers will also face the music. 
 
Probably for the first time in India’s history, the government has used its clout and influence to bring back fraudsters, instead of helping stash money abroad! What a contrast from a Congress finance minister who told me he could do nothing about bringing a crony of Ketan Parekh back to India, even while he openly traded in India as a foreign institutional investor. 
 
Winsome Diamonds: Until recently, one had believed that Jatin Mehta and family of Winsome Diamonds/ Suraj Diamonds had got away with their heist of bank funds. After duping banks of Rs7,000 crore, he scooted abroad to acquire the citizenship of St. Kitts, a tax haven in the Caribbean islands, and nobody seemed interested in pursuing him. 
 
On 3rd July, the CBI raided 61 places across India, with a team of over 300 officials to go after various companies, but primarily Winsome Diamonds. It is unclear what they will do; but one expects this to lead to extradition efforts along the lines of Vijay Mallya, Nirav Modi and Mehul Choksi. 
 
The Middling Fraudsters: On 3rd July CBI raided the second rung of industrialists, whose defaults are around Rs100 crore. These included Ludhiana-based Supreme Tex Mart (allegedly owes Rs143.25 crore to State Bank of India), Aegan Batteries (alleged loss caused to banks of Rs99 crore), Ramnanndi Hotels and Resorts Ltd (alleged loss Rs131.79 crore), Naftogaz India Pvt Ltd  (owes Rs93 crore), SL Consumer Products (Rs55 crore loss), etc. 
 
Such concerted actions make one optimistic, after a very long time, that the government is, indeed, serious about punishing corporate fraud by Indian industrialists. Many of them have built immense personal wealth, most of it stashed abroad, through rampant diversion of funds, inflated project costs and bribing and corrupting bankers and politicians. For many decades, they have dumped bad loans running into thousands of crores of rupees on banks, mainly PSBs, the cost of which was eventually borne by the people through repeated re-capitalisation of banks by the exchequer. Hopefully, this would be a thing of the past, because we need to restore confidence in the system. 
 
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    COMMENTS

    Gupta

    1 month ago

    Good to see an article from ML with some positivity and hope in the future. Indeep hope this hope comes true and all these efforts lead to a serious change in attitude of industrialists and bankers. It might be worthwhile to add that it is the first time in the history of banking that heads of some public sector banks are now in jail and heads of all corrupt private banks have been thrown out by the RBI. I wish some of them get some serious jail time too like in the USA. While its a sad fact to see lacs of crores of write offs by banks, the flip side is that for the first time, at least crooks are losing these businesses (the hen that laid their golden/corrupt eggs) and banks are acknowledging the problem at hand instead of repackaging the problem loans into 30 year debt with 10 year moratorium and assuming all is well. While I give less than 25% score to this govt on economic issues and their capability to manage it, they score >75% on intent and ability to take risks and change the system at any cost. We are a country full of crooked businessmen and now all these crooks are going to jail or are in NCLT. No wonder GDP is suffering and employment is in the doldrums. Hope this is the transition period and a new breed of businessmen emerge to take this country to the next level.

    Alok Avasthi

    3 months ago

    Good Article. As she says - let’s hope the government remains unmoved by the lobbying and pleas of big industry to go easy on them.

    sundararaman gopalakrishnan

    4 months ago

    Good article as usual by Sucheta Dalal..

    Ketan

    4 months ago

    With such strict Banking Norms & a strong regulator, it doesn't fit right somewhere that the people who scooted the wealth away didn't have anyone in banking or political arena backing them.
    No one material has been brought to light in that aspect? Do you think they will be ever be judged or brought to justice?

    Harish

    4 months ago

    Excellent Article, as usual. May your hopes come true.

    SANJAY KHEMANI

    4 months ago

    The real test would be when the judiciary finally convicts them and that too in timely manner. The track record so far has been dismal. Let us hope that judiciary also rise to the occasion.

    D S Ranga Rao

    4 months ago

    Welcome news.

    Gurudutt Mundkur

    4 months ago

    HA! HA! Nice to read something positive coming from you!

    Arumugaraja

    4 months ago

    It is easy for big corporates to get 1000 crores loan than for a SME to get 10 crores loan.

    S. Gopalakrishnan

    4 months ago

    Videocon , the Dhoots , Chanda Kochar of icici bank and her husband are conspicuously absent in this round up !!

    Ramesh Jaradhara

    4 months ago

    In political arena, morning never choose the day! By flesh and blood, Modi is a politician first, and then a true Indian later.

    Mohan Krishnan

    4 months ago

    Madamji sorry you are jumping the gun. Thing can go awry anytime with the crony capitalist/Politician/bureaucratic system which is well entrenched.

    REPLY

    bhavesh pandya

    In Reply to Mohan Krishnan 4 months ago

    Just eyewash.... Madam ji how much actual money came back????? ZERO

    PRADEEP KUMAR M S

    In Reply to Mohan Krishnan 4 months ago

    πŸ‘

    bharat singh

    4 months ago

    your app have no option to share the content

    B. Yerram Raju

    4 months ago

    Better late than never. The article is an excellent reminder to unleash the forces of law to book the economic offenders sooner than later. It is important to make economic offences non-bailable.

    REPLY

    chanchalmantri100

    In Reply to B. Yerram Raju 4 months ago

    Anil Ambani is victim of corruption in Govt...He is not getting his 30000 crore back from Govt....In India media does not look for real issue but keep on pressing where ever they find loopholes...
    Think from Anil Ambani perspective that he has to sell hus HQ also...
    Yes, he might have made some adjustments to his books but our past govts for 60years were like that and promoted cooking of books ...Things can't change overnight....

    Gupta

    In Reply to chanchalmantri100 1 month ago

    I don't understand your point. Thank god our mantri's are not chanchal like you to take fraud by these industrialists so kindly as you are expecting. You seem to have lot of sympathy for Anil Ambani despite acknowledging that you understand he made "some" "adjustments" in his books, which seems to be pardonable in your view. Shareholders of his companies have lost in lacs of crores and banks (read taxpayers) have lost tens of thousands of crores. Lets not blame it on some fake claims of 30000 crore on the govt to trivialize the issue.

    PRADEEP KUMAR M S

    In Reply to chanchalmantri100 4 months ago

    πŸ‘

    Ramesh Bajaj

    4 months ago

    I hope this goes on and even unlisted companies come under the scanner. Most of us cannot survive litigation and costs.

    CBI Raids 50 Places Across the Country in Bank Loan Frauds Worth Rs1,135 crore: Reports
    The Central Bureau of Investigation (CBI) had conducted searches in more than 50 locations in 12 states and union territories (UTs) in connection with bank losses totalling over Rs1,134.58 crore, say reports.
     
    An official from CBI told IANS that said several teams carried out the raids in 18 cities including the residences and business premises of companies, promoters, directors and bank officials for an amount worth Rs640 crore.
     
    The places where the raids took place include: Delhi, Chandigarh, Mumbai, Thane, Pune, Valsad, Surat, Ludhiana, Gurugram, Gaya, Palani in Tamil Nadu, Bhopal and Kolar in Karnataka.
     
    According to a report from the Hindu Business Line, there have been 14 fresh cases registered against the accused, including various companies and firms, their promoters and directors and bank officials. 
     
    Listing the cases, the CBI had said that it acted upon a complaint by the Export Import Bank of India (EXIM Bank) alleging bank fraud by Winsome Diamonds and Jewellery Ltd, leading to a loss of Rs202 crore. Taking this into account, the CBI now has 16 cases registered against Winsome and its promoters.
     
    "In the case registered on Tuesday, Winsome Diamonds and Jewellery has been named as an accused. Jatin Mehta, the promoter and director, Ramesh Parikh, Hariesh Mehta, Jai Kumar Kapoor, Hari Mohan Namdev, all directors of the company, have been named in this case. Haytham Salman Ali Abu Obediah and unknown public servants have also been named," the report says.
     
    Following complaints by Bank of India (BoI), a case has been registered against Eskay K’N’It (India) Ltd (popularly known as Tayal group), that alleges wrongful loss of Rs91.36 crore. In addition to the company, Navin Kumar Tayal, its chairman; Anand Zawar, managing director; and Naresh Chandra Sharma, Trivendra Shambhu Singh, and Manmohan Balbir Ahluwalia, all directors of the company, have been named in the case. Pravin Kumar Tayal and Ram Pratap Tayal, guarantors of the company, and unknown public servants have also been named in this case.
     
    A case against Ludhiana-based Supreme Texmart has been lodged by the CBI on a complaint filed by State Bank of India (SBI), the report says, adding the amount of ‘wrongful loss’ caused is pegged at Rs143.25 crore and Ajay Gupta, the company's MD and guarantor; Gautam Gupta, a guarantor; and Sanjay Gupta, a shareholder and guarantor, have been named in the case.
     
    Gold Leaf International Private Ltd, a related party and guarantor, and unknown public servants have also been named in this case, it added.
     
    According to the newspaper, cases against promoters and representatives of Aegan Batteries (Rs98.75 crore), Ramnandi Hotel and Resorts Ltd (Rs131.79 crore), Nefto Gas India Pvt Ltd (Rs93 crore), SL Consumer Products Ltd (Rs55 crore), Samprash Foods Pvt Ltd (Rs60 crore), International Megha Food Park Ltd (Rs40.17 crore), Ranjeet Automobiles (Rs34 crore), Jalpa Textiles Pvt Ltd (Rs28 crore), Supamed Trading Pvt Ltd (Rs57 crore), Asuti Trading Pvt Ltd (Rs50 crore) and others have also been filed.
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    COMMENTS

    Dr.Dhananjaya Bhupathi

    4 months ago



    https://drive.google.com/file/d/15jzUgnNW975KF2TJ03NBrnWwuBbDc4x-/view?usp=sharing
    1. Unless & until lazy duds of adhocism in PMO/UFM are replaced & refurbished by magnanimous visionaries, nothing can be achieved by the Indian PRIME MINISTER & Union Finance Minister.
    2. thereat.https://www.youtube.com/watch?v=T7fOf8rUrdw.
    3. SATYAMAEVA JAYATHE!!!

    REPLY

    A BANERJEE

    In Reply to Dr.Dhananjaya Bhupathi 4 months ago

    Very correct.

    Ramesh Poapt

    4 months ago

    cleaning of endless dirt!

    VASANT KULKARNI

    4 months ago

    AT LEAST SOME BEGINNING IS MADE. LET US SEE HOW IT WORKS.

    Ramesh Bajaj

    4 months ago

    This seems to be a tip of an iceberg. There are so many unlisted companies, where the hapless shareholder is ripped off, and he doesn't have resources to fight.

    Veeresh

    4 months ago

    Interesting to observe that the 20 to 200 crore bracket who used to think they were invisible have now started jumping like frogs in a hot bucket. Below 20 crores was usually easy meat to fry, over 200 crores to 2000 crores could afford protection and over 2000 crores was part of the larger political horizon. It was the 20 to 200 lot who were broadly into making it a multiplier family business where cookie cutter models of the same scams were pulled off with impunity assuming they would be below the radar.

    A BANERJEE

    4 months ago

    After waiting for five long years, at last some action is being taken now and we hope that these searches will definitely unearth--if not gold, bullion and cash--incriminating documents which will lead the investigators/authorities to the brain behind the fraud and, from there, to the person(s) at whose instance and with whose patronage this has been perpetrated. What is needed is to identify the greedy and corrupt bureaucrats/bank executives without whose complicity and pecuniary partnership such frauds simply cannot take place. It is also hoped that the CBI is assisted by the ED/IT/SFIO sleuths in the operations. What is strange, however, is the missing name of Kolkata from where every fraud invariably is generated from times immemorial. But, I am sure, the investigators must have prepared themselves very well and did the recce faultlessly. Wish the operations full success.

    AUM Growth of Housing Finance Companies Halved in H2-FY2019: Report
    The liquidity challenges that followed the debt default by Infrastructure Leasing & Financial Services (IL&FS) in September 2018 pulled down growth in assets under management (AUM) of housing finance companies (HFCs) in the second half of fiscal 2019, says a research note.
     
    In its report, ratings agency CRISIL says, "Fiscal 2019 was a year of two contrasting halves. The first half saw stable growth and comfortable access to funding, with AUM growing at an annualised rate of about 21%. However, the second half brought a reversal of sorts with AUM growth plunging to around 10%. With funding access being affected, non-banks, including HFCs, were forced to curtail disbursements and focus instead on conserving liquidity."
     
    The industry AUM stood at Rs12.4 lakh crore as on 31 March 2019, up 16% from same period a year ago. 
     
    Krishnan Sitaraman, senior director at CRISIL Ratings, says, “Access to funding will determine the growth prospects for HFCs. As of now, lenders and investors seem to be differentiating between HFCs -- preferring those with strong parentage and credit profiles and going slow on those with a large wholesale portfolio. This will be reflected in business growth differing for these entities.”
     
    Among the HFC segments, the ratings agency says the distinction between the two halves was the sharpest for non-housing loans –primarily developer loans and loans against property (LAP), which comprised a third of the total AUM of HFCs as on March 2019 that saw growth print around 5% (annualised) in the second half, compared with about 28% during the first half. Housing loans, on the other hand held up better, growing at close to 13% (annualised) compared with 18% in the first half.
     
    Banks outpaced HFCs in home loans, given the HFCs’ growth slowdown, CRISIL says, banks managed to gain market share in home loans. "Indeed, for the first time in at least five years, banks, supported by portfolio buy-outs, outpaced HFCs in home loans and grew at 19% in fiscal 2019. With banks’ continued focus on retail growth, especially in this segment, and HFCs keen to conserve liquidity, the trend is expected to continue for a few quarters more."
     
    Over fiscals 2020 and 2021, the ratings agency expects growth to revive to 12%-14% for HFCs, though it feels this would still be lower than levels seen in the past. This growth will be supported by mid-teens growth for the two largest players, constituting more than 50% of the industry AUM, it added.
     
    To be sure, CRISIL says, limited ability to raise funds through commercial papers (CPs) and cautious call by a few players to reduce dependence on short term borrowings led to a decrease in the share of CPs in total on-book borrowings to about 7.5% as on 31 March 2019, down almost 450 basis points (bps) from around 12% as on 30 September 2018.
     
    "Instead," it says, "many players resorted to securitisation to meet their liquidity requirements. In fact, the securitisation and direct assignment of mortgages more than doubled to around Rs93,000 crore in fiscal 2019 from about Rs35,700 crore the previous fiscal. External commercial borrowings also gathered pace, albeit in a limited way."
     
    From an asset quality perspective, the sector saw overall gross non-performing assets (NPAs) inch up to around 1.4%, from 1.1% in fiscal 2018. That said, CRISIL says it believes two-year lagged gross NPAs are a better indicator of asset quality in mortgages because of their long tenures. That number stood at about 2.1% on March 2019, which is around 50bps higher than that as on March 2018.
     
    While the reported NPAs in the developer financing portfolio have been low till now, they have been primarily supported by long moratorium periods and exits provided by refinance.
     
    “In recent months, with incremental funding towards real estate coming off, asset quality concerns in the developer financing book have increased. The impact of refinancing slowing down will need to be monitored given that the ability of lenders to recover, in case of default, through liquidation of assets has not been tested in any material way till date,” says Subha Sri Narayanan, director, CRISIL Ratings.
     
    According to the ratings agency, LAP is another segment that remains a monitorable, given the rise in delinquencies that have already been witnessed. 
     
    It says, while the long-term growth prospects for HFCs remain intact, asset liability maturity management and liquidity conservation would remain front and centre for the next few quarters. 
     
    The regulatory environment is also expected to evolve. National Housing Bank has recently tightened the permissible leverage levels and capital adequacy ratios for HFCs; further action could be expected from the regulator on the liquidity front with Reserve Bank of India (RBI) already having issued draft guidelines for non-banking financial companies (NBFCs) on liquidity risk management framework.
     
    "Nevertheless, we believe HFCs with strong parentage and those with robust risk management systems and processes will be able to navigate the current environment better," CRISIL concluded. 
     
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    COMMENTS

    chanchalmantri100

    4 months ago

    Please write about why DoT not allowed Rcom asset sale in 22000 crore Jio...It would have stopped all issues and bank NPA there only...
    Also write about why Govt not paying Power companies their due...Rinfra to get 4500 crore, Rcap need to get 6000 crore...

    Krishnamoorthy Venkataraman

    4 months ago

    In case big NFBC fail in its contractual obligations, it will have impact on the entire banking system, when th RBI and government may have to take various steps, unpalatable to many and varied financial instituitons.

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