NDTV raids: CBI move will make bankers jittery, hurt banking sector
The CBI case against NDTV’s Prannoy Roy and his wife goes back to a transaction in 2008 when ICICI Bank gave a loan of Rs 366 crore to a private company promoted by Prannoy and Radhika.analysis Updated: Jun 07, 2017 10:17 IST
A Supreme Court judgement in February 2016 expanded the definition of public servants to include officers of private banks, paving the way for the CBI to probe them under the prevention of corruption act.
As reported by HT, the CBI has cited this order while filing a case of bank fraud against NDTV founders Prannoy Roy, his wife Radhika and unnamed officials of the ICICI Bank.
But experts and lawyers have pointed to the pitfalls of the change in the definition of a public servant.
“The rationale of making public servants liable for their action is because they are trustees of public money. But private bank officers are answerable to their shareholders and there are provisions in the companies act to monitor their actions,” senior Supreme Court advocate KTS Tulsi said.
Sources in the banking sector said the case against ICICI would lead to tentativeness among bankers while taking decisions. “The fear of prosecution will now prevent private banks to work freely,” a source said on condition of anonymity.
The government has time and again admitted that bad loans, or non-performing assets (NPAs), are one of its biggest challenges facing the economy.
Indian banks were saddled with stressed assets amounting to about Rs 10 lakh crore, or close to 7% of India’s GDP, as of December-end.
Top bankers, who refused to be identified, pointed to the damage the CBI case would do to the resolution of these bad loans. Risk, a key aspect of banking, will now be avoided to ensure that sleuths do not come knocking.
It was last month that the government enacted an amendment for speedier recovery of bad loans but fears of investigation will stop banks from restructuring interest rates to ensure long-pending loans are paid off.
Piling bad loans in banks hinder credit, in turn investment slows and the economy is hurt. Any action by the government or its investigative agencies to stifle the smooth working of bankers will have a long-term impact on economic growth. A gentle reminder of the policy paralysis during the UPA regime.
The CBI case against the Roys goes back to a transaction in 2008 when ICICI Bank gave the RRPR Holding Private Ltd, a private company promoted by Prannoy and Radhika, a loan of Rs 366 crore. This loan was on personal guarantees of the Roys.
Within a year, ICICI settled the loan, agreeing to a lower interest that allegedly resulted in a loss of Rs 48 crore for the bank, the CBI FIR said. The federal agency alleges criminal conspiracy and collusion between the Roys and bank officials that caused this loss. But to prevent a loan from becoming irrecoverable, banks lower interest rates to ensure that at least the principal is paid back.
There might be a legitimate case against the Roys, but attacking a private bank and its freedom to restructure loans will have far-reaching consequences, warn wise men.