Banks, SEBI slow to act against defaulters, says CBI Director

CBI Director Anil Sinha had some sharp words for banks on Wednesday, accusing them of not doing enough to act against recalcitrant borrowers. Capital market regulator SEBI also copped some flak “for not stepping in proactively” to protect the rights of ordinary depositors.

Addressing the ‘7th Conference of CBI and Indian Banks’ Association’, Sinha noted that NPAs had grown nearly seven-fold — from ₹44,957 crore in 2009 to ₹3 lakh crore in 2015, and made specific references to the cases of the now-defunct Kingfisher Airlines and Pearl Agrotech Corporation Ltd (PACL). “…There is also a rise in the quantum of high-value frauds in borrower accounts, especially those pertaining to periods from 2008 to 2012 … Something is indeed seriously wrong,” the CBI chief said.

The CBI investigated 171 cases of bank fraud in 2015 involving ₹20,646 crore. In addition, the agency is also investigating Ponzi schemes involving over ₹1.2 lakh-crore.

Kingfisher, PACL cases

Sinha said the CBI had in July 2015 registered a case of cheating and fraud against Kingfisher and its erstwhile management, involving allegations of defrauding banks to the tune of ₹7,000 crore. The loans/advances were taken between 2004 and 2012.

“Despite our repeated requests, the banks did not file a complaint with CBI. We had to register the case on our own. I recently read a newspaper report that one of the banks has now declared it as a [case of] wilful default. “The undue delay in identifying and reporting such a fraud has jeopardised … justice to the offenders’ benefit, giving them the opportunity to divert funds and destroy evidence,” Sinha said.

Referring to the case involving PACL Group, which reportedly collected over ₹51,000 crore illegally from nearly 5.5 crore investors, Sinha said it needed the Supreme Court to step in to order a probe, and later, refunds.

“Should not the regulator (in this case SEBI) have suo motu stepped in to protect the rights of 5.5 crore ordinary depositors,” he asked.

Wilful and fraudulent

While loan defaults could arise from business risks and reasons beyond the control of banks, borrowers and defaulters, a significant portion of the defaults were wilful and fraudulent, Sinha said. “A major part of the NPAs and frauds are in large-value accounts. Added to this is the unduly slow and long process by which such loans … are red-flagged, declared NPAs, then as ‘wilful defaulters’ and finally as ‘fraudulent’.

“This whole process is so time-consuming that it allows such large borrowers … to walk away with the funds,” Sinha said, adding that a large part of such funds move to tax havens through hawala channels. “No one seems accountable. The message to the public is that the rich/powerful are able to avoid consequences of cheating and fraud, while ordinary citizens are promptly booked,” he said.

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