In a new twist of liquor barron Vijay Mallya’s mega loan fraud case, an annual financial inspection revealed that the Reserve Bank of India (RBI) had instructed some public sector banks (PSBs) in 2008 to provide the extended fresh loans in several rounds to private airline now defunct Kingfisher Airlines (KFA), owned by billionaire Mallya, and further continued the loan sops thereafter to the firm without paying heed to the central bank’s asset classifications guidelines, top sources close to the development told The Pioneer on Monday.
The case came to the light when an annual financial inspection team found that the airlines firm was falling under the category of ‘sub standard assets’- a category which is considered as non-performing asset or NPA in the bank loan process.
As per assets classification norms on bank loans, there is no risk in business if any firm is found to fall under standard assets category and if it falls beyond this category, the firm gets declared as an NPA. That means KFA was not fulfilling the banks’ eligibility norms and fell under sub standard assets category which reflected its poor status of assets classifications and loan repayment for getting next fresh round of loans.
As per the sources, the RBI had conducted an Annual Financial Inspection (AFI) of the banks in 2008 at one of inspection wings of a Kolkata-based public sector bank. The move of central bank was to check books and balance sheet of banks and issue follow-up directives to the concerned banks as well as the consortium of lenders led by the largest public sector lender, State Bank of India (SBI) which altogether had extended loans to the Mallya-owned airlines firm.
“As per the RBI guidelines, we were conducting a routine exercise and inspecting bank books at one of the centres in a PSB, headquartered in Kolkata. During the AFI, we had observed that the total loan amount of Rs 3,000 crore, which had been provided to Kingfisher Airlines until 2008, was not falling under standard asset category. So we had decided that the airlines firm should have declared as an NPA so as to stop any further financial assistance to be extended to the firm.”
When asked about the details of PSB where the inspection was held, he declined to disclose the name of the bank but said that it was a routine affair of the RBI at one of the Kolkata-centric PSBs. Adding further, however the sources said, “Even though having agreed in-principle to turn the entire loan as NPA, the then internal team formed by the central bank, received a directive from the top RBI officials, asking them not to turn the loan as NPA. Then the inspection team who were fully involved in the process willy-nilly had acted as per their superiors’ order.”
Generally, the RBI inspectors conduct routine financial inspections annually to check bank books if asset classification is in line with the loan repayment and if banks have made provisions adequately. “Thereafter, the above loan continued to fall under the category of standard asset which was gateway to get further assistance and thus the Mallya-owned firm remained eligible for the next round of fresh loans by the consortium of lenders led by SBI. As a result, the firm was extended several fresh rounds of loan amounting to total of Rs 6,000 crore over and over again for years,” sources said.
When contacted about such development which had happened in the past, an RBI official, requesting anonymity confirmed it. Regretting with a cautionary note of advice of the then inspection team, he said, “Had the RBI paid heed to the suggestions of the internal team and turned the already sanctioned loan as NPA, the firm would not have been able to go for fresh round of loans. And thus our banks, which faced with huge NPAs as of today, would have been saved.”
Most of the loans were granted to KFA between 2006 and 2009, when Vijay Mallya was also a Member of Parliament (MP) and reportedly lobbying the then Governments for his loan restructuring and revival of the KFA.
Recently, a huge number email communications have also been discovered and under scrutiny too. However sources said, “The suspicious emails which Mallya sent to senior company officials, political leaders and bankers, may form a part of the chargesheet by Central Bureau of Investigation (CBI) - which is expected in the next few months - on the mega loan default by Kingfisher Airlines.”
Mallya managed to slip out of the country to london in March last year, leaving behind a total outstanding due, in various cases including interest, of close to about Rs 9,000 crore. Now, the issue has got politicised to such an extent that politicians from both UPA and NDA Governments are pointing their fingers at each other to be responsible for this issue.
The CBI also arrested 9 key accused in connection with the Mallya’s loan default case, including former IDBI Bank Chairman Yogesh Aggarwal and former KFA Chief Financial Officer A Raghunathan along with three other ex-officials of IDBI Bank and four former executives of KFA.