Commentary/ Mani Shankar Aiyar
Was there a political nexus to Gopalakrishnan's failure?
Warning signals about things being wrong at Indian Bank were received
as early as 1992-93 when Indian Bank was discovered to have suffered
erosion of assets in the amount of Rs 1.02 billion. In subsequent
years, erosion of assets and the size of non-performing assets
rose precipitously as follows:
In 1993-94: Erosion of assets -- Rs 11.5 billion; NPAs -- Rs 27.2 billion.
In 1994-95: Erosion of assets -- Rs 14.7 billion; NPAs -- Rs 28 billion.
NPAs constituted a full one-third of Indian Bank's advances during
the last three years: 36 per cent in 1993-94; 30 per cent in 1994-95;
35 per cent in 1995-96. This happened despite Indian Bank's MoU
with the RBI in 1994 through which Indian Bank undertook to reduce
NPAs to not more than 23 per cent of its advances.
Such reckless
lending policies wiped out in a single year the recapitalisation
of Rs 20 billion granted by the government in 1994-95. The RBI has since
refused permission for any further recapitalisation. Indian Bank's
recapitalisation requirements now exceed the entire amount for
recapitalisation of nationalised banks provided for in Chidambaram's
Budget.
Before the scandal broke, RBI inspection reports and recommendatory
notes had drawn attention to the following deficiencies:
- repeated violation of RBI guidelines in making advances;
- not taking into account serious adverse remarks by auditors;
- credit expansion for in excess of budgeted provision;
- credit expansion despite serious distortion in credit:deposit
ratio;
- extensive tapping of call money market;
- excessive exposure to particular business houses;
- non-adherence to RBI norms in respect of income recognition
and asset classification;
- accounting for interest income on NPAs on accrual basis in
contravention of accounting norms;
- inclusion in interest receipts and other receipts of ineligible
items;
- short provisioning by classifying NPAs as 'standard loans';
-
Inadequate or even misleading information to the board;
- non-reporting of fraud cases to the board in a situation of
increasing frauds;
- perfunctory inspection, leading to poor inspection reports
on internal controls;
- no monitoring system for overseas branches of Indian Bank;
- improper management of credit portfolios;
- uninhibited exceeding of borrowing limits for single/group borrowers;
- exceeding delegated powers by sanctioning authorities and
ex post facto approvals by higher authorities in a routine manner
without proper application of mind;
- excessive operating expenses leading to operating losses exceeding
Rs 2.23 billion;
- sanctioning of loans on oral instructions of the CMD.
Therefore, the questions to be put to the high-level investigation
or judicial commission demanded of the government would include:
Names of ministers in the Union and state governments who
are beneficiaries of Gopalakrishnan's largesse in their own names,
for family members or business in which they have a pecuniary
interest;
Names of other leading political personalities, including
MPs/MLAs, who have derived pecuniary advantage from Indian Bank
in terms of loans written off or outstanding;
Assessment of number and sources of recommendations made to
Gopalakrishnan by political personalities and the extent to which
such requests were accommodated by him;
Outcome of enquiry ordered by former finance minister Jaswant
Singh into Indian Bank's relationship with East-West;
Outcome of the departmental probe initially ordered by the
finance minister;
Did RBI instruct Indian Bank to recast its balance sheet for
1994-95 owing to misclassification of its loan assets and the
sudden deterioration in the quality of its loan portfolio? Did
Indian Bank act on this instruction to the satisfaction of RBI?
Did RBI instruct Indian Banks to intensify its recovery of
NPAs? What action did Gopalakrishnan take on this? To what extent
have recoveries improved under the new management? If, as reported,
the improvement has been significant, why did Gopalakrishan not
take the same steps? Was there a political nexus to his failure
to do so?
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