Congress Era Loan Scams: Fin Min Sanctions Prosecution Of IOB Officials In Vijay Mallya Case

India's top probe agency CBI will finally be able to put the former high ranking officials of the Indian Overseas Bank (IOB) in the dock for granting 'reckless loans' to Kingfisher Airlines and erstwhile liquor baron Vijay Mallya. After nearly 10 years of the BJP government coming to power, the Finance Ministry (Fin Min) has only now given its permission to the CBI to prosecute IOB officials for loans under Congress era to businessmen like Mallya, who were close to the party. IOB is a government promoted bank and as per the law, it is only when public servants exceed their lawful authority and commit any criminal offence that the question of prosecuting them for that offence arises and it is only for such prosecution that the sanction of the authority competent to grant sanction is required.

The sanction for prosecution has been given against Satya Mishra the then General Manager, Centralized Credit Processing Centre; Suhas Bhat, the then Managing Director of IOB, Anil Bansal, Executive Director of IOB, and Narendra Mairpady the Competent authority, sources told Businessworld. Mallya, the former promoter of Kingfisher Airlines, is accused of intentionally defaulting on loans, causing a wrongful loss of over Rs 180 crore to IOB. The CBI has alleged that Mallya diverted loans obtained by Kingfisher Airlines from IOB between 2007 and 2012 for unauthorised purposes. CBI investigation is also on against former top officials of SBI and Central Bank of India at the time of granting of loans to Kingfisher and Mallya.

While Kingfisher Airlines took birth and thrived on cheap banking loans under the Congress led UPA government, it went defunct as the BJP led NDA government came to power in 2014 as the cheap source of money dried up. Shortly after, Mallya fled the country and got ensconced himself in the UK, the country which has thwarted all the measures by India to extradite the flamboyant businessman. Since then, Prime Minister Narendra Modi has chided the Congress for its 'Phone Banking Scam,' where bank managers extended loans on phone calls from high ranking ministers and bureaucrats in the finance ministry. Yet, under the incumbent government, the probe on loan scandals by the CBI has moved rather slowly. The NPA (Non Performing Assets) situation in India before 2014, when Congress was in power, was severe. The gross NPA ratio of scheduled commercial banks (SCBs) stood at 4.9%, and ₹66.6 lakh crore in March 2014 were bad loans.

The current case where the CBI has been given a sanction for prosecution pertains to a complaint by the State Bank of India (SBI) against loans granted by IOB as fresh credit facilities to Kingfisher under the corporate guarantee of United Breweries Holdings Limited (UBHL) and personal guarantee of Vijay Mallya. In July, a Special CBI court had issued fresh non-bailable warrant in the IOB loan matter against Mallya, who is absconding from India but living a flashy life in the UK. As per the CBI case, it is alleged that between 2007 - 2010, IOB had granted a total 5 loans to Kingfisher worth total Rs 255 crores. The company had paid back two loans worth Rs 100 crores but the remaining three were pending. In 2010, India's banking regulator RBI directed to lead the consortium of 18 banks and reconstruct the pending loans. Thus three pending loans to the tune of Rs 127.68 crores were reconstructed and additionally a loan of Rs 89.38 crores was also sanctioned in June 2010. Further, in December 2010, two fresh loans to the tune of Rs 18.89 crores and 10.56 crores were also sanctioned. In addition, in February 2012, IOB had sanctioned a loan of Rs 20 crores. All these loans turned into NPAs causing a loss to the government banks to the tune of Rs 141.91 crores on the account of default on loans and an additional wrongful loss of Rs.38.30 Crores on account of conversion of loans to shares.

Following the loans turning into NPA, SBI moved a complaint with CBI, which registered a case against Kingfisher, Mallya, UBHL and others on August 12, 2016. CBI after the investigation submitted a chargesheet in December 2021 against Mallya, Kingfisher, UBHL, A. Raghunathan, Shailesh Borkar - General Manager – Finance with Kingfisher ; Amit Nadkarni Dy. General Manager (Finance) - Kingfisher along with the officials of IOB.  As per CBI, the first loan to the tune of Rs 50 crores was obtained by Kingfisher using highly exaggerated data, making false promises and restating of financials for infusion of equity. Interestingly, the second loan of 50 crores was diverted to buy a Eurocopter. Also, a loan of Rs 80 crores in April 2008 was obtained to buy two helicopters. These loans were restructured in 2010 and the CBI has claimed that Borkar, falsely represented that the helicopters would be used for chartered operations for NHIs and corporate clients and made false net profitability projections and equity investment projections.

In July, the court while taking cognisance of CBI's chargesheet had said, "Allegations pertaining to the bank to sanction and disburse the credit facilities to M/s. KAL on the basis of false rosy projections about the profitability equity infusion of the company, diversion of such loans for the purposes other than those avowed and dishonestly and with intent to cheat, willfully defaulted on the repayment obligations under the aforesaid loans, thereby causing a wrongful loss of Rs.141.91 crores on account of default on loans and an additional wrongful loss of Rs.38.30 crores on account of conversion of loans to CCPS /CRPS shares, are prima facie evident."

On the role of the bank officials the court said, "the accused bank officers abused their official positions as public servants. They had shown undue favour to Mallya and Kingfisher, processed the loan proposals of Kingfisher in undue haste and sanctioned the same overlooking the precarious financial condition of the company."

Further, the court was of the view that Kingfisher and Mallya "deliberately and dishonestly defaulted on their obligations under such guarantees and alienated their respective assets in violation of the guarantee provisions, with the object to cause impediments in the banks’ recovery efforts and to evade their own liabilities under the said guarantees," the court further added while taking cognisance of CBI's case.