Directors and chairmen of nationalised banks ignored the red flags raised by their internal assessment teams on giving loans to Vijay Mallya’s Kingfisher Airlines, despite the company showing signs of financial sickness since 2009, say investigators. A consortium of state run banks have an outstanding amount of around Rs 9,000 crore on loans given to Kingfisher Airlines. Investigators say that it is impossible that the bank leadership did not know that these loans were turning into non performing assets (NPAs); and say that these senior officers deliberately turned a blind eye to these. They also say that many of the independent directors on these bank boards were political appointees—in fact, one of the former directors in one state-run bank even fought the 2015 Delhi Assembly elections on a Congress ticket. These loans were applied for and taken by Kingfisher Airlines in the eight-year period between 2004 and 2012, when the UPA government was in power at the Centre. In these eight years, the banks continued to adopt a favourable attitude towards Kingfisher Airlines owner Vijay Mallya and did not take the legal route against him despite the loan amounts turning into NPAs. According to official sources, Kingfisher Airlines allegedly diverted a substantial amount of the loan amount to tax havens.
“There are two glaring lapses regarding the conduct of the top management of the state-run banks that were dealing with Kingfisher. First, loan was being sanctioned continuously to a company, which was clearly on a downward spiral and this was being done despite the bank officials being aware that the loan amount was not being used for the purpose it was taken, which is also very clear from the books of the company. So why the banks continued to expand their exposure to Kingfisher Airlines despite all the negative signs is something that we are looking into,” an officer with the Central Bureau of Investigation (CBI) told this newspaper.
Of all the banks, State Bank of India (SBI) has the highest exposure to Kingfisher at Rs 1,600 crore. The IDBI has an exposure of Rs 900 cr. The other public sector banks who exposed themselves to Kingfisher Airlines are UCO Bank, Punjab National Bank, Vijaya Bank, Bank of Baroda, Corporation Bank, Bank of India, United Bank of India, State Bank of Mysore and Indian Overseas Bank. As per SBI rules, any loan amount worth more than Rs 500 crore is to be “vetted” by a high powered committee comprising the bank chairman, managing directors and directors.
Sources said that officials belonging to the top management of various banks personally made sure that Mallya continued to get the financial help. “In 2009, he got a loan of Rs 900 crore from IDBI, which was sanctioned within one month of his meeting with a very top bank officer. This happened despite the company showing negative signs in the account book. This loan was sanctioned despite an IDBI internal assessment stating that Kingfisher has failed to meet even basic guidelines for seeking a loan, which includes depositing tax deductions from employees,” an official said.
Kingfisher Airlines was set up in 2003 and got listed in 2006. Its permit was suspended in October 2012.
As per CBI officers, senior officials of the banks, including from SBI, who played a part in sanctioning the loans to Kingfisher Airlines, will be questioned to seek answers on why the loans were given even though it had become clear that these were turning into NPAs. “We will look into every aspect including whether these officials, many of them who are political appointees, bypassed rules and laws to help Mallya,” the official added.
The top management of the state run banks also have directors, mostly political leaders, who are appointed by the Central government. In August 2014, the CBI arrested a Bhopal based senior lawyer who was also the spokesperson of the Congress party, for allegedly accepting a bribe of Rs 50 lakh on behalf of his brother-in-law, who was the chairman and managing director of Syndicate Bank. The bribe was allegedly paid by a company, which already had a loan account with the Syndicate bank, for increasing its credit limit by Rs 200 crore, despite the company not being eligible for the increased credit limit.
In view of the political intervention in the appointment of directors in state run banks, the Narendra Modi government last year tightened the rules for the appointment of independent directors on the boards of state-run banks, insurance companies, other financial companies and Reserve Bank of India. One of the requirements for such appointments now is that the non-official director should be at least a graduate with 20 years of relevant experience with a proven track record, and should not be a Member of Parliament, state Legislative Assembly or a stock broker and a person who has been on the board of any bank or financial institution for six years, either continuously or intermittently.
Retired bank officials say that it will be very difficult to prove the criminal liability of any senior bank officials in Kingfisher case. “In such cases, where loans worth crores are to be sanctioned, the process of giving loan starts from the middle level management, after which the files go to the top level management. In the present case, at the most, some of the middle level officers will be charge-sheeted under the garb of fixing responsibility but none of the top level officers, the chairmen and the MDs will be hauled up, despite the fact that the decision to whether or not to give loans to Kingfisher was theirs and not of some mid level manager,” said a retired general manager with SBI.
The CBI, which is investigating the case, has till now not sent any letters rogatory to any countries where Mallya had allegedly transferred the money. According to sources, the CBI officials who are investigating the case had told the agency that the LR should be issued way back in June 2015 but it has not been issued even now.