The Enforcement Directorate last week arrested Deepak Kochchar, husband of former CEO of ICICI Bank Chanda Kochchar, in connection with a money laundering case.
The Kochchars are alleged to have received kickbacks, in lieu of Chanda facilitating Videocon to secure loans from ICICI Bank, which later turned into NPAs (non-performing assets).
In January 2019, ICICI Bank had terminated Chanda’s employment and clawed back bonuses and stock options received by her during April 2009 to March 2018.
In January earlier this year, the ED had attached assets worth Rs 78 crore as proceeds of white-collar crime.
There have been umpteen instances of broker-banker nexus, banker-promoter nexus, which have led to the arrest of bank officials in the past, namely, Zoom Developers, Nirav Modi scam, Money Matters, Bhushan Steel, Videocon-Kochchars, Rana Kapoor, Winsome Diamonds, which spring up prominently. In all these cases topmost officials of banks were alleged to be involved in the fraud.
As per Reserve Bank data, as many as 5,200 officials of public sector banks were punished for fraud between January 1, 2015 and March 31, 2017 (1 every 4 hours).
Small loans of up to Rs 5 crore which get sanctioned by relatively lower-level officers are susceptible to such a practice. Over the years, however, bribes for even large loans have increased manifold.
Earlier, PSU banks were believed to be suffering from this malaise, but the Kochhar and similar cases show that private banks too are not untouched.
Foreign banks operating in India have reported fewer cases. The main reason is that foreign banks’ Chief Risk Officers, or delegation officers as they are called, do not have approving authority of high ticket loans. Often these files go to Asian and/or global headquarters for approval.
Promoters and brokers, even if they succeed in fixing the local committees of foreign banks, find it very difficult to influence members of three committees.
In public and private sector banks, the promoters/brokers need to fix a single committee or the Boards or the top officials (CEO/CRO/GM, etc.) to get their loans processed.
What is the modus operandi of promoters/brokers who bribe bankers to get loans passed in committees? They befriend bankers. Diwali is the ‘official bribing season’ of India. You need to visit a bank branch or head office during the festival. Officers who matter are splashed with gifts, ranging from high-end pens and wallets to consumer durables to gold coins.
Many banks do have a defined gift policy wherein gifts above a certain limit have to be declared and submitted to the compliance committee, which then uses it for charity. In foreign banks in India, limits are usually set at $75 per client.
During one of my tenures in a bank abroad, one of the Indian clients had given us gold coins, as it is considered ‘auspicious’. Compliance refused to grant permission and we had to return the gift. Obviously, some colleagues were not happy.
One of the prominent groups of the country, which till recently had some of its companies in the IBC (Insolvency and Bankruptcy Code), has a very innovative method of influencing bankers. It distributes gift cards to bankers in various denominations during Diwali, across the entire banking landscape, even to banks which have not provided any banking facilities to it.
One can assume that the gift card denominations would be higher for banks which have facilities rather than the ones which have not granted any loans.
The issue with public and private sector banks is that the Chief Risk Officer reports to the Chief Executive Officer who is responsible for business. Often, the CROs are hesitant in asking relevant questions or challenging the business side because ultimately his/her appraisal is done by the CEO.
Apart from Diwali gifts, foreign holidays, passes to events, football/cricket matches, invitations to high-profile Bollywood parties, etcetera are also arranged. Kickbacks in the form of loans/investments in companies of related parties (like it has been alleged in the high-profile cases) have also gained traction to evade scrutiny of enforcement agencies. Higher the loan amount, bigger the kickbacks.
The role of politicians also cannot be ignored, more so in the appointment of chairmen/managing directors of public sector banks. The appointees then are lured/influenced into lending money to close confidants of their political bosses.
Private lobbies work to get specific people installed as chairmen of big public sector banks, and the job brings with it opportunities for a lot of bribe-taking in return for private loan favours.
Bribes are not only given for granting loans but also for other things, such as classification of NPAs, covenant breaches, top-up of security, renewal of loans, top-up loans, waiver of fees/penalties, extensions, restructuring of loans, etc.
You might see on LinkedIn so many profiles of debt arrangers. Who are these people? What special qualities do they have? How can they package the financials of a company that does not meet the credit parameters of a borrower and arrange loans for them for a fee? Why do companies approach such brokers when they can approach banks directly? These middle men often end up as conduits of the exchange of gifts/money.
Children of most of the promoters are educated in foreign universities and are globetrotting citizens. They often meet top officials of foreign banks in industry conclaves. These sophisticated English-speaking children floor top officials, pushing for deals, who then pass on the leads to respective local offices back in India.
When I was in foreign banks in India we used to get many such requests. But since we were aware of the credit history and financial capacity of the company, we seldom moved forward on those proposals. However, a lot of time was wasted on analyzing them since it came from the top.
Many PSU banks have established branches abroad. When an Indian bank opens a foreign branch, who would normally do business with them? Mostly Indian companies and individuals. Since these branches have business targets, many companies who wouldn't pass the credit/KYC test in India are provided loans, as the thresholds are lower.
I have heard that promoters of very small companies who would never even get an appointment with any PSU bank top official, host them for lunches and parties outside India. These small companies are big clients of their foriegn branches.
Ultimately, it all boils down to the value system and the integrity of character of an individual, which in several cases, seems to be pretty low these days.