Saturday, February 24, 2024

New Indian gift mela

After fugitive borrowers have sucked Indian PSU banks dry through NPAs, the RBI suddenly tells them it is okay, come back home, all’s forgiven

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By Sujit Bhar

There is a popular saying in India, which goes like this: “If you owe the bank Rs 1,000, it’s your problem. But if you owe the bank Rs 100 crore, it’s the bank’s problem.” That isn’t any odd flippant comment. Every action of Indian banks—especially India’s PSU banks—and of certain financial institutions indicates that the saying isn’t without substance. The trick is to get that Rs 100 crore—or maybe even Rs 1,000 crore or more—out of the bank or a consortium of banks in the first place. When you brazenly default, don’t panic; India’s PSU banks are the ones who will get clay feet, they will lose all sense of objectivity and honour and fall at your feet. They will even offer conciliatory deals that may leave the banks with massive NPAs, but allow you, the defaulter, possibly by then residing in another country, to live happily ever after.

Exciting and fun stories such as these have been told time and again, and the likes of Vijay Mallya, Lalit Modi, Mehul Choksi, Nirav Modi, Jatin Mehta and many, many more are now household names.

What have these people and our banks done to our hard earned money? In all, they have siphoned off over ten trillion rupees from Indian banks. That is a 1, followed by 13 zeroes! That, by current exchange rates, is approximately $122 billion. For an idea of scale, India’s total trade deficit for 2022-23 was $122 billion.

While that is a humongous amount of money, Indian authorities have hardly been able to make any headway in getting these criminals to book, and recovery has been next to nothing.

Bolt from the blue

It was a pathetic scenario: Weak-kneed PSU banks were on all fours, scrambling to attempt recoveries and the Central Bureau of Intelligence (CBI) had started another set of processes, this time against Vadodara’s Sandesara brothers—Nitin and Chetankumar—for another massive scam which somehow nobody had noticed. That was when, out of the blue, the government and the Reserve Bank of India (RBI) went ahead and issued a policy statement virtually guaranteed to break the backs of the banks and have the fraudsters laughing all the way, well, back to the same banks again.

This policy statement offers a conciliatory compromise formula that might not even leave these extraordinary individuals in the category of “defaulter” anymore. These world class frauds might just be able to say sorry and come back home, and they will be mildly rebuked and slapped on the wrist with a 12-month ban on further loans. The idea is to get some money out of these people, if it is possible. What an idea, Sir’ji!

How strange is this new policy note?

The circular says that wilful defaulters and companies involved in fraud can go for a compromise settlement or technical write-offs by banks and finance companies. It also says that banks can undertake “compromise settlements or technical write-offs regarding accounts categorised as wilful defaulters or fraud without prejudice to the criminal proceedings against such debtors.”

The (minimum) one-year “ban” on loans has been sweetly termed as a “cooling period”. So, the defaulters can again get new loans after 12 months of executing a compromise settlement.

Media reports have quoted bank officials as saying that this “…can lead to a tricky situation. There’s a possibility that more public money will be lost in the process. A wilful defaulter is a borrower who refuses to repay loans despite having the capacity to pay up.”

These write-offs are on-paper account settlements, which simply make the NPAs disappear, quite a Houdini act, though it benefits only the defaulters. In the last ten years, the reduction in NPAs due to write-offs was Rs 13,22,309 crore. Read that again.

Clueless investigations

All the while, the CBI has been processing cases against the new naughty kids on the block, the Sandesara family of Gujarat, now Albanian citizens, wanting to be Nigerian citizens as well.

The Sandesaras had planned well and started early, through the Vadodara-based Sterling Biotech which they own. That scam is well known, looking very much like just another of those scams that Indians have grown used to. The two brothers and Chetan Sandesara’s wife Diptiben, sucked Sterling Biotech dry, and their actions have been brazen, even in the face of moves made by the CBI.

What has happened is that they seem to have left their evil Biotech roots far behind, and the brothers Nitin and Chetan Sandesara have now become the largest exporters of crude from Nigeria, other than energy giants like Shell and Exxon Mobil.

The method they adopted was like a fairytale. In short, they took massive loans—over more than $1.7 billion—from Indian public sector banks and not only siphoned the money outside of Indian borders, but also used it to build a great business group in Albania and then in Nigeria.

A South African reminder

This reminds us of the Gupta family of South Africa. They were a wealthy and influential business family from Uttar Pradesh, India, who developed very close ties to former South African President Jacob Zuma and his administration. They used their influence to gain most of the lucrative deals that the government handed out and became rich and hated. The family members were brothers Ajay, Atul, and Rajesh “Tony” Gupta, as well as Atul’s nephew, Varun. They were helped by US-based Ashish and Amol.

With the help of the administration, their empire in South Africa spanned mining, media and technology. The basis of the growth, of course, was corruption within the administration, initiated by the Guptas.

Sandesaras smarter

The Sandesaras were cleverer. They siphoned money out of Indian banks and invested it abroad, not bothering with paybacks in India. In Nigeria, they have attained star status, with two decades of the group-building—massive parties were regularly thrown for the employees, videos of which are still on YouTube—and now they pump about 50,000 barrels of oil a day from two onshore licenses. They now aim to double that output with a third permit.

The Nigerian government is happy too, one of their firms being a key partner of the state in a development launched last November to bring commercial oil production to northern Nigeria for the first time. This was a pet project of former President Muhammadu Buhari and new President Bola Tinubu also praised the initiative, saying the “discovery will provide a multiplicity of opportunity and great prosperity” for Africa’s largest crude producer.

That is a great cushion for the Gujarati family, living off nearly $2 billion worth of filched funds from Indian banks.

Now, as the Indian authorities started pushing for their extraction and prosecution, comes RBI’s bolt from the blue.


The basic idea of the RBI was possibly to avoid a policy that banks adopt with their borrowers, through which they keep restructuring huge loans, effectively keeping them evergreen. In finance parlance, this process has been called evergreening, something the RBI abhors.

Lately, RBI Governor Shaktikanta Das has indicated that evergreening is still going on, which is a clear indicator that the banking sector may be pretty hollow. The RBI hints at an unholy nexus between bankers and borrowers.

The rest of the recovery procedures are stuck within the never-ending judicial process. There were complaints that banks were undertaking compromise settlements without even informing Debt Recovery Tribunals (DRTs). Specific such cases have been reported, exposing this unholy nexus.

The catch

Now that the bank-defaulter cat is out of the bag, the government wants a face-to-face settlement. But here is the catch. Think of a situation where the Sandesaras, who have simply walked away with nearly $2 billion from Indian PSU banks and have also taken Albanian citizenship (wanting a Nigerian ones as well), coming sheepishly back to Vadodara within the barrage of CBI charges, just to be able to avail the RBI’s “compromise formula.” An educated guess is that this isn’t happening.

So where does that leave the government-RBI compromise? In the realm of an eyewash-world, maybe? A lot can actually happen between now and the general elections of 2024. Wait and watch.

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