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

The Economic Times - - Front Page - Saloni.Shukla@ times­group.com

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

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