CBI chief blasts lenders for KFA fraud, not filing complaint

Warning that non-payment of loans by big borrowers will erode people's faith in the law, the CBI today blasted lenders for not coming forward with a complaint in the Kingfisher Airlines "fraud", saying the delay helped the company "divert funds and destroy evidence".

"The message to the public is that the rich and powerful are able to avoid consequences of cheating and fraud, while the ordinary citizens are promptly booked. This undermines faith of people in rule of law, which has dangerous consequences in a democracy," CBI Director Anil Sinha said at a bankers' conference here.

Citing the Kingfisher Airlines' case, in which the Vijay Mallya-promoted airliner has defaulted on loans of Rs 7,000 crore way back from Janaury 2012, Sinha said, "Despite our repeated requests, the banks did not file a complaint with the CBI.

We had to register the case on our own."

Regretting that only "one among the 17 lenders" who owed money, had declared KFA as a "wilful defaulter", Sinha said the loans in question were taken between 2004 and 2012, while the CBI filed the case only in July 2015.

The comments, made before an audience comprising top bankers, including Arundhati Bhattacharya of SBI, ICICI Bank's Chanda Kochhar and Axis Bank's Shikha Sharma, come amid a huge spike in banks' bad assets and the RBI's attempts on cleaning up the books to show a true picture of the balance sheets.

Bhattacharya refused to react on the critical comments of the CBI chief, saying she does not speak on specific accounts.

Industry lobby IBA's chairman and head of state-run Dena Bank Ashwani Kumar said there is nothing which can be called "deliberate" in the case of KFA".

"The CBI Director's view is that in some cases there is delay in filing complaints for fraud... but it is not deliberate," Kumar claimed.

Sharma of Axis Bank pointed out that there is a process, which a bank needs to follow while declaring someone as a wilful defaulter.

"As far as wilful defaulters are concerned, the clients should have defaulted and we should be able to prove that there was wilful default. You have to go through a process and of course, you have to give a chance to hear out the borrower because if you just unilaterally declare him as a wilful defaulter, then he can take you to the courts," Sharma argued.

So far, three banks -- Union Bank of India, SBI and Punjab National Bank -- have declared now-defunct Kingfisher Airlines and its promoter Mallya as wilful defaulter.  

Addressing the conference organised by CBI with bankers here, Sinha said, "The question is that undue delay in identifying and reporting such a fraud has jeopardised the cause of justice to the offenders' benefit giving them opportunity to divert funds and destroy evidence."

He added that a large part of such funds move outside the country to tax havens through hawala and other unofficial channels, and added this hampers its investigations.

"Something is indeed seriously wrong. While I fully understand that loan defaults can happen due to business risk and reasons beyond control of banks, borrowers and regulators, yet a significant part of the defaults are wilful and fraudulent.

What causes greater concern is that a major part of the NPAs and frauds are in large value accounts," he said.

The CBI chief rued that resolving the asset quality stress is an "unduly slow and long process" in which loans are "red flagged, declared NPAs, then as wilful defaulters and finally as fraudulent."

Stating that the bulk of the problematic assets have been extended loans in the periods from 2008 and 2012, the CBI chief said, "Time has come to rethink and re-devise strategies so that on one hand banks and financial institutions work fearlessly to power the economy towards growth, but at the same time, fix the fraudsters and public officials who collude with such cheats."

Sinha also flagged the issues of identifying and reporting frauds, allowing borrowers to siphon off funds before investigations and monitoring end use of funds to ensure there is no diversion, as issues which need attention.

He said in the past six years, gross NPAs of state-run lenders have gone up to over Rs 3 trillion from Rs 44,957 crore and added that CBI investigated 171 cases of bank frauds entailing funds of Rs 20,646 crore in 2015. In the December quarter as many as 10 state-run banks have declared close to 9 per cent of their assets as NPAs.

Citing a recent case at Bank of Baroda, Sinha said the banking channels are being used to commit a wide variety of financial crimes at present. The agency is probing an over Rs 6,000 crore worth of forex scam in involving a branch in central Delhi.

Calling for more deliberations on bank frauds, Sihna said, "We must realise that these crimes strike at the very root of our economy and weaken the faith of the public in the banking system and governance."