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Millennium Post

The rot runs deep

The rot runs deep
Barely a week had passed since the detection of the Rs 11,300 cr fraud at Punjab National Bank (PNB) when the news arrived of Rotomac Pens' Chairman and MD Vikram Kothari being booked for an unpaid loan of Rs 800 crore, accrued from five public sector banks. As per media reports, CBI has detained Kothari, along with his wife and son for questioning. The CBI is also conducting raids on Kothari's office, residence and other properties. Kothari had borrowed Rs 485 crore from Mumbai-based Union Bank of India and Rs 352 crore from Kolkata-based Allahabad Bank. Apparently, these loans were given by a consortium of five public sector banks. The Indian public sector banks have an astounding Rs 6.5 lakh crore of non-performing assets or bad loans. Kothari's Rs 800 crore unpaid loan is the latest in a series of similar loans taken by a large number of big industrialists, more notably by former liquor baron Vijay Mallya, whose NPA stood at Rs 9,000 crore. Mallya has fled the country and is evading arrest as he is currently in Britain. As the probing agencies are conducting raids on Nirav Modi and Mehul Choksi's assets across the country in a bid to detect the money trail and the systematic failure of the banks to detect the fraud in time, the Indian banking industry has been hit by astronomical proportions of bad loans and is struggling hard to pull on. The centre has pumped Rs 2.6 lakh crore into public sector banks in the past 11 years. So, in effect, public sector banks are using up public money to set off losses caused by frauds and bad loans. The banks offering these loans often compromise on laid-down rules and the companies have little in the name of corporate governance. As the fraud and bad loans involving Vijay Mallya, Nirav Modi and Vikram Kothari are making headlines, one thing is very clear that the internal mechanism to run the businesses ethically and as per the law is either inefficient or they are geared up for the willful breach of law and unethical practices. Banks can't afford to go by the public image of the big corporate. They need to stick to the rulebook and put in place a mechanism to detect the fraud at the very beginning.
On the one hand, the public sector banks are sitting on a huge pile of NPAs and the governments have been forced to infuse capital in these banks every now and then, taking the total infusion of such money to Rs 2.6 lakh crore in the past 11 years; on the other hand, the government has not allowed the banks to make public the names of loan defaulters. The country knows that Rs 6.5 lakh crore has been swindled from state-owned banks, but it does not know who all have availed these loans. This situation does not encourage clean banking practices. Industrialists and corporates know it very well that if they default on a loan, the banks can't recover the money as political interference and court cases will ensure that the matter lingers on without a remedy in sight.
Meanwhile, in the Nirav Modi fraud case, the ED raided 45 premises in 15 cities on Sunday. It is also looking into about 200 shell companies floated by Nirav Modi and Mehul Choksi of Gitanjali Gems. Nearly two dozen franchise outlets of Gitanjali Gems and their promoters are in deep trouble with their businesses closed down and the promoters coming under the scanner of the CBI and ED. The CBI is interrogating the two PNB officials and the authorised signatory of Nirav Modi and his companies. All three have been taken into custody by the CBI. The latest banking fraud by Nirav Modi and the case of unpaid loans by Vikram Kothari have come at a politically sensitive time when a number of states are going to polls and the opposition is taking up these issues in their election campaign. Congress president Rahul Gandhi has asked Prime Minister Narendra Modi to speak up regarding the case of Nirav Modi. He also asked the Prime Minister and the Finance Minister not to behave as if they were the guilty. Sarcastically, he said that the finance minister is in hiding since the banking fraud by Nirav Modi came to light. While the government can pass the blame on Congress rule in the past for the high rate of banks' NPAs, it needs to explain the measures it has taken to stem the rot. The Congress has demanded a White Paper on the banking industry. If not the White Paper, the government certainly needs to come out with the measures to put the banking system back on its desired track.
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