IDBI Brass Brushed Aside Junior Execs’ Concerns on KFA Loans
Some officers insisted on shares as collateral but top management banked on Kingfisher brand instead
What CBI Says Mumbai: IDBI Bank officials internally quarrelled over the approach to sanction fresh loans to Kingfisher Airlines as a bunch of executives insisted on collateral before signing off on the dotted line while the top management overruled the juniors and instead went with Kingfisher Airlines brand as a guarantee which did not even have legal backing, the CBI alleges.
The CBI chargesheet has alleged that despite junior staff in IDBI Bank seeking shares as collateral for the .₹ 750crore loans, the then head of corporate loans BK Batra ‘struck off ’ the portion in the loan proposal document. The junior staff insisted on unencumbered shares as security.
“The intangible asset was accepted as a security by the accused officers. On the other hand, the efforts made by the lower level of officials for seeking collateral securities through pledge of unencumbered shares of the company was discarded and the loan was sanctioned without adequate securities,” the CBI chargesheet says.
The coming fiscal year will face headwinds. Falling oil prices had yielded an opportunity to raise duties on petroleum products by 1% of GDP in the last two years, but prices are now rising. Rising interest rates in the US are one reason for the flight of $9.8 billion from Indian financial markets in November and December, of which two-thirds was from debt markets.
The shift to a goods and services tax is a notable achievement, and has huge longterm promise, yet will initially cause glitches and large revenue losses for the states, that have to be made good by New Delhi. The banking system has more bad debts than earlier expected and needs much more recapitalisation. This will limit the scope for budget freebies. The Survey sees the need for raising public investment to offset the continuing slack in private investment. But it also sees the need for fiscal restraint, especially since the fiscal deficits of the states have risen from 2.5% to 3.6% of GDP. One heartening feature is the sharp rise in foreign direct investment, running at an annual rate of $75 billion. This is comparable to FDI into China at a similar development phase.
Looking ahead, the Survey presents an economic vision for a “precocious, cleavaged India”. This makes India sound like a busty teenager aiming for Bollywood. What the Survey means is that India has instituted democratic rights far earlier than most countries in history, but is cloven by more regional, religious and caste distinctions than almost any other country. The road ahead is marked by three meta-challenges — ambivalent attitudes to the private sector, weak state capacity, and (as a corollary) inefficient redistribution to the needy. The World Values Survey shows that India is one of the most anti-business countries in the world. This explains the reluctance of successive governments to privatise state enterprises, or free agricultural marketing. Public sector banks are kept dominant since they are useful milch cows for political goodies to sundry vote banks. Cleaning up bank balance sheets is proving difficult since any attempt to write off losses of big corporations may be interpreted as corruption. The perception corruption has led to excessive caution and delay in decision-making, and to sub-optimal decisions (like auctioning spectrum at the highest price instead of providing low-cost spectrum to reach more people).
State capacity is dismal and unreformed. India is worse at delivering educational and health services than any other country at similar development levels. Absenteeism, corruption, clientism and red tape dominate. One consequence is inefficient redistribution to the poor. Hundreds of of welfare schemes fail to reach the masses. The Survey presents research showing that the most backward districts, most in need of support, typically get far less from welfare schemes than the national average. This is because state capacity to deliver tends to be weakest in the poorest regions. One consequence of pathetic state delivery is that the middle class is progressively defecting to private institutions for education, health and other services. This further erodes the legitimacy of the state, leading to more defection and even less pressure on the state to improve services. India needs massive administrative reform to get out of this vicious cycle.
The banking system has more bad debts than expected and needs much more recapitalisation. This will limit the scope for budget freebies