CBI may probe only key bank frauds

NEW DELHI: The government is considering having the Central Bureau of Investigation (CBI) look into some extraordinary bank frauds, with specialised agencies such as the Serious Fraud Investigation Office (SFIO) being asked to investigate most other cases — a move aimed at allaying the fear of being prosecuted for purely commercial decisions that is forcing bankers to go slow on lending.

The CBI may be kept out of most loan default cases, two people familiar with the thinking in government said on condition of anonymity. The economy, recovering from the devastating impact of the still ongoing Covid-19 pandemic, needs higher credit growth, but bank employees are hesitating to sanction loans fearing CBI, they added. The ministries of home, finance and corporate affairs, SFIO, CBI and the Indian Banks’ Association (IBA) did not respond to email queries seeking comment. India’s economy shrank by 24.4% in the three months ended June 30 and 7.3% in the three months ended October, before entering growth territory and expanding by 0.4% in the three months ended December 31. The government has estimated the entire year’s GDP contraction at 8%.

Higher credit growth is one of the requirements to accelerate gross domestic product (GDP), one of the two people said. According to the latest data of the Reserve Bank of India (RBI) annualised non-food bank credit growth in January this year was slower at 5.7% compared to 8.5% in the same period last year. Credit to industry, however, contracted by 1.3% in January 2021 as compared to 2.5% growth in January 2020, it said.

In December 2019, Prime Minister Narendra Modi said at the HT Leadership Summit that bank employees should not be penalised for “genuine business decisions”.

The same month, finance minister Nirmala Sitharaman said honest bankers need not to fear the three Cs – CBI, the Central Vigilance Commission (CVC) and the Comptroller and Auditor General of India (CAG).

But numbers present the rationale behind the fear.

In just three years, from 2018 till 2020, CBI registered bank fraud cases involving amounts over Rs 1 lakh crore, according to an HT analysis of the agency’s first information reports (FIRs). In 2020 alone, the agency registered over 200 bank fraud cases, involving amount totaling ₹70,000 crore, the highest ever in a year. In 2019, close to 100 bank fraud cases were filed by CBI involving around ₹20,000 crore. The agency has also hired around 50 bank officials on deputation in last few years to assist it in banking investigations.

To be sure, it is likely that high-profile cases involving significant defaults, or fugitive borrowers, will still be investigated by the agency. For instance, CBI has been investigating the IDBI Bank - Kingfisher Airlines case, involving the latter’s promoter, Vijay Mallya.

It is also likely that CBI will investigate bank fraud cases where the promoters have fled the country. The government informed the parliament in September last year that 38 people, named in bank fraud cases, fled India between 2015 and 2019.

Soumya Datta, general secretary, All India Bank Officers’ Confederation (AIBOC) said: “The proposed move (restricting CBI’s role in the banking sector) will certainly benefit all stakeholders. We have already raised our concerns to the government that there is a fear psychosis in the banking industry.”

Datta said that officials are often scared to lend and the bankers are not inclined to settle bad loans to avoid harassment by the investigative agencies. A senior executive of a large stateowned bank said on condition of anonymity that “bank officials do not want to take even legitimate decisions that could invite attention of agencies like CBI and jeopardise their careers”.

Abhishek A Rastogi, partner at law firm Khaitan & Company, said the proposed move to give larger responsibility to SFIO for handling bulk of bank-related cases is pragmatic and will address larger number of cases while saving CBI’s time and resources so that it can focus on big-ticket cases. “Robust credit culture is the need of the hour for revival of the economy and the efforts of the government to augment growth by improving the credit culture can be achieved with not only strong principles and actions but also pragmatic deterrents and rewards within the lending organisations,” he said.

A former CBI director said on condition of anonymity that “CBI should only register big fraud cases and smaller cases can be given to the states’ economic offences wing”. He added that the floor “for example, cases above ₹500 crore” has to be decided by the government.

THE CBI MAY BE KEPT OUT OF MOST LOAN DEFAULT CASES, TWO PEOPLE FAMILIAR WITH THE THINKING IN GOVERNMENT SAID ON CONDITION OF ANONYMITY