SBI’s Dy. MD Case: The Tip Of The Loan Scam Iceberg

The country’s banking sector has been jolted again following the raids by the Central Bureau of Investigation (CBI) at a Delhi-based ferrous scrap trader Piyoosh Goyal of Worlds Window Group in connection with a “bribe for loan” case. Another loan scam has also been busted, with graft charges being framed against SBI’s Deputy Managing Director, Shamal Acharya. The bank has constituted a committee of two senior MDs to investigate into the charges of bribe-taking for giving Rs 100 crore in loans, and Acharya has been asked to go on leave. Another former employee of SBI, K K Kumar, has also been arrested. This has again opened a can of worms with regard to the corruption in credit disbursement.

On one hand, banks are reluctant to give loans to individuals, while on the other, a big scam is going on in corporate credit, with bank officials minting huge money in the form of bribes from corporates to sanction loans. What is more disturbing is that the blatant flouting of rules to give sanctions and disbursements is ultimately leading to NPAs. As of June 2013, the NPAs in PSUs banks stood at 2.89%. This was basically due to corporate debt, with the top 30 large clients accounting for more than 80% of the NPAs. The Finance Ministry has now instructed banks not to give fresh loans to wilful corporate defaulters.

A bank official, on condition of anonymity, told DSIJ that wrong sanction of loans and NPAs are directly connected. As the sanctions are given in connivance with a whole chain of bank officials from top to bottom, they also arrange for ways out if the loan becomes bad in the future. The current NPAs situation  is so bad that in a SME branch of Syndicate Bank in Delhi-NCR, loans worth Rs 100 crore out of around Rs 300 crore turned bad (NPAs).

The official said that in the banking system, there is a term ‘technical write-off’, where bad loans will be written off from the books but the recovery process against that loan remains effective. Writing off a loan technically requires an approval of high officials. Sometimes the board is also consulted in case of large loan amounts.

Once the loan is written off technically, banks take a hit on their profit for bad loans and stop showing them in the books. “Clearly, the whole loan vanishes at the cost of banks profit and defaulter go on uncaught with all the money”, comments the official. Recently, the RBI Deputy Governor K C Chakrabarty also pointed that in the past 13 years, banks have written off around Rs 1 lakh crore. 95% of these are large loans, and technical write-off is a major cause of concern.

“All the wilful corporate defaulters are hand-in-glove with the bank officials for technically writing off their loans. In return, they agree to pay hefty bribes for the outstanding amount,” the official comments.