ABG Shipyard Ltd.'s Rishi Agarwal, Bhushan Power and Steel Ltd.'s Sanjay Singhal, Videocon Group's Venugopal Dhoot and Kingfisher Airlines' Vijay Mallya all faced consequences when bank loans given to their companies went bad. These consequences went well beyond the 'bad loan' tag and extended to investigative agencies looking into allegations of fraud and the role promoters played in the loan defaults.
One group that has managed to escape such consequences is the Anil Ambani group of companies.
Over the last two years, loans given to Reliance Communications Ltd., Reliance Infratel Ltd., Reliance Telecom Ltd. and Reliance Home Finance Ltd have turned bad. Forensic audits have been conducted. Regulatory strictures have been passed.
However, bank fraud proceedings remain halted due to various court orders and investigative action is yet to be pursued.
An email sent to the Anil Ambani group on Monday seeking status of fraud proceedings against them was not answered.
Reliance Communications
In 2019, when financial creditors initiated insolvency proceedings against Reliance Communications and its two subsidiaries, they had commissioned a forensic audit of these companies, three people with direct knowledge of the matter said.
The audit had highlighted questionable transactions worth Rs 5,500 crore, they said.
The audit found that bank loans were routed from the three companies to small group firms, without the knowledge of the banks. At least some of these funds were routed through circular transactions back to lenders, the people quoted above explained.
After receiving a final report in the matter in October 2020, banks had moved to classify the three accounts as fraud. Immediately though, Punit Garg, a former executive of Reliance Communications, had approached the Delhi High Court challenging the classification.
The court passed a status quo order in January 2021, till further notice. The matter is still pending and the interim order continues to be in force.
While the status quo order bars banks from taking any coercive action against the companies or their promoter, they are free to approach investigative agencies for further action. But, banks haven't done that yet.
According to two of the three people quoted above, banks have gone slow on proceedings after tagging the accounts as fraud.
Banks believe that while funds were diverted to other companies, none of the money was siphoned off. Banks are more focused on resolving the stress and recovering dues, these people said.
Since these cases were already fully provided for, owing to the vintage of their non-performing status, banks have refrained from taking further action, the people said.
Large lenders such State Bank of India, Union Bank of India and Bank of Baroda have an exposure to these companies.
"As a policy, bank does not comment upon individual accounts and their conduct," a spokesperson for SBI said in response to BloombergQuint's queries.
Queries mailed to Union Bank of India and Reliance Group remained unanswered. Anish Nanavaty, the resolution professional for Reliance Communications, Reliance Infratel and Reliance Telecom, declined to comment.
Reliance Home Finance
Lenders had initiated a forensic audit into Reliance Home Finance in 2019, which was concluded in January 2020. The audit followed loan defaults by Reliance Home Finance, where lenders had suspected related-party transactions.
According to a stock exchange notification by the company on Jan. 12, 2020, the audit did not find any instance of fraud by the company or its employees. It had also said that Reliance Home Finance had voluntarily disclosed potential related party transactions worth Rs 7,984 crore, which had been used to repay banks, financial institutions and bondholders.
Despite these claims, lead lender Bank of Baroda, public sector banks Punjab National Bank and Indian Bank, as well as old generation private bank Karanataka Bank have classified Reliance Home Finance as fraud in August 2020.
The Delhi High Court in separate orders has passed interim orders to maintain status quo in these matters. The status quo continues till date, according to filings available on the court's website.
Here too, banks haven't pushed for any further fraud-related proceedings.
According to the three people quoted above, discussions between lenders and the company's promoters and senior officials have given enough comfort that the money was indeed utilised to repay banks. Since there was no evidence of money being siphoned off, banks have not pursued criminal proceedings.
A spokesperson for Bank of Baroda said that the bank has initiated action against Reliance Home Finance, as required under the regulatory norms.
“Based on the forensic audit report received, the bank has initiated appropriate action as per RBI guidelines. Since the matter is subjudice, we cannot share any further details,” the spokesperson said.
Reliance Home Finance's loan portfolio was approved for sale to Authum Investment and Infrastructure Ltd., by the banks involved. Authum had offered to buy Reliance Home Finance's Rs 13,000-crore loan portfolio at around Rs 1,600 crore last year, the people quoted above said. However, the sale is not yet closed since the Reserve Bank of India is yet to clear the transaction.
In the Reliance Home Finance case, the company and its promoters have faced regulatory action too.
In an interim order released this month, the SEBI barred Anil Ambani, Amit Bapna, Ravindra Sudhalkar and Pinkesh Shah from the securities market, after it found prima facie evidence of misappropriation of funds by Reliance Home Finance.
In his interim order, SEBI whole time member SK Mohanty wrote that the regulator was "cognizant of the fraudulent manner in which the noticees have conducted their affairs to swindle huge sums of borrowed funds of RHFL for the benefit of promoter linked entities of the company in flagrant violations of all canons of corporate governance."
Separately, the RBI superseded the board of Reliance Capital, the core investment company which held Reliance Home Finance. The company is currently under insolvency.
Are Banks Dragging Their Feet?
According to the third person quoted above, a former public sector banker, a major stumbling block in pushing ahead with criminal proceedings is the bureaucratic burden involved with filing a case with investigative agencies. This is a major reason why first information reports are filed by the agencies years after an initial complaint, the banker explained.
The Reserve Bank of India's master circular on classification and reporting of frauds require banks to report a case of fraud within three weeks of identification. The norms also state that banks must approach investigative authorities with a written complaint for large fraud cases.
According to a former deputy governor of the RBI, who also spoke anonymously, the fraud classification and reporting norms are clear that banks have to follow a string of actions once they have identified an account as fraud.
If banks have decided not to fulfill these actions, then it is up to them to explain it to the RBI, the former central banker said. As such, the norms do not envisage withdrawal of a fraud classification, which is not to say that it is not possible. If banks are not able to convince the regulator that their actions are justified, then the regulator reserves the right to take appropriate action against them, he said.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.
