Why would foreign direct investors come to an India where white collar criminals can cheat banks and individuals with impunity? And why is it that investigative agencies and the courts treat such fraudsters with kid gloves? Until we get serious about such crony capitalism, our economy will continue to plod canter instead of galloping.

An article on the website squarefeetindia.com says that Rakesh Wadhawan, of HDIL, who is a wilful defaulter of PMC Bank, had, a few months prior to the PMC Bank scam being revealed, gifted their house to a private family trust, in an effort to ring fence it from attachment. Presuming that the Wadhawans had given personal guarantees, this seems a fraudulent attempt to sequester personal assets and so reduce the collateral for the bank. Meanwhile, the depositors of the bank continue to suffer a freeze on their deposits.

Is this an attraction for FDI?

Twisting the knife in the depositor’s wound, the RBI explained why a rescue of PMC Bank is not possible, unlike failed private bank, YES Bank, where it was. RBI said that YES Bank was a corporate entity where voting was based on the number of shares held, one vote per share. But in a co-operative bank like PMC, voting is based on one vote per member, irrespective of holding. To me, that seems like a cop out. Possibly, RBI felt rescuing one co operative bank would set a precedent for others, and there are far too many co-op banks that have been criminally negligent in lending depositor money.

Adding salt to depositors bloody injury, the article also states that, so long as the banking licence is not cancelled, depositors cannot claim deposit insurance of ₹5 lakh from the Deposit Insurance & Credit Guarantee Corporation! It is RBI that decides when to cancel the licence. So, even the deposit insurance is denied.

Savers and depositors are modern day slaves. Their savings are kept in a bank, whose officials either through oversight or through collusion, give loans to white collar criminals who have no intention to repay. In the case of PMC as much as 74 per cent of deposit funds was loaned to HDIL group. That, in itself, is enough of improper management to warrant a cancellation of its licence! Why doesn’t it?

This reminds one of the old song, Sixteen Tons, about coal miners toiling in underground mines:

You load sixteen tons, what do you get? Another day older and deeper in debt; Saint Peter don't you call me 'cause I can't go; I owe my soul to the company store.

In another bizarre move, the Department of Telecommunications (DoT) sought to lay a claim on Reliance Jio for the past liabilities, due on AGR (Adjusted Gross Revenue) of Reliance Communications, with which Jio had a spectrum sharing arrangement. DoT wanted to claim its dues owed by RComm from Jio even prior to the arrangement!

Is this an attraction for FDI? If a company invests in India, it will have to deal with other companies. Suppose it buys, let’s say, coal from another company. Would it become liable for past dues of the supplier, on unpaid royalty on coal? Can business be done in this manner?

Now, the DoT has objected to the settlement of the resolution plan proposed by the Committee of Creditors, for liquidation of bankrupt RComm, under which ₹23,000 crore would flow in, and be used to settle dues of RComm. DoT is an operational creditor, who is unsecured, and, as such, ranks below a secured creditor. This is a globally accepted norm. DoT complains that it will recover much less than secured creditors and wants the distribution to be reviewed.

But if we keep trying to reinvent the wheel, the car will never move forward!

The same point was debated in the Essar Steel case and it was decided, rightly, that secured creditors had superior rights.

Is this continuous reinventing of the wheel an attraction for FDI?

The writer is India Head-Finance,Asia,Haymarket.The views are personal

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