If ICICI Loan ‘Loss’ Is All CBI Has Got Against NDTV Owners, Case Won’t Fly
If the CBI is going to make anything against NDTV stick, it will have to do better than this.
There may be other cases to follow up, but this one isn’t going to fly.
If the entire substance of the Central Bureau of Investigation’s (CBI) probe into the financial affairs of NTDV is that the promoters settled their loan with ICICI Bank at a lower interest rate than agreed earlier, and that the bank accepted a “loss” in order to recover its loan, the case won’t fly. If there is any case at all, it lies in the technicalities of alleged violations of certain sections of the Banking Regulation Act.
In response to widespread criticism of its raids on NDTV’s promoters as an attack on media freedom, the CBI put out statement yesterday (6 June) to make the following points:
The allegations under investigation are not regarding the default in loan repayment; but relate to the wrongful gain of Rs 48 crore to the promoters – Dr Prannoy Roy, Smt Radhika Roy, M/s RRPR Holdings Pvt Ltd and a corresponding wrongful loss to the ICICI bank arising from their collusion and criminal conspiracy.
But if we assume that banks are in the business of lending, some of which may go bad, it is obvious that sometimes they have to accept losses and “haircuts” on the principal. The losses ICICI Bank took may be justified if the idea was to prevent the entire outstanding loan from going bad. Over the next few months, we are expecting the Reserve Bank of India (RBI) and various banks to do precisely this to settle bad loans and recover what they can from defaulting companies. Is the CBI planning to arrest RBI officials and bank managers if they accept losses and lower rates on the balance loan as part of the recovery process?
The more important point the CBI made was about violation of section 19(2) of the Banking Regulation Act. It says:
The promoters of NDTV… acting in criminal conspiracy with unknown officials of ICICI Bank, violated section 19(2) of the Banking Regulation Act, the Master Circular DBOD No. Dir B90/13.07.05/98-99 dated 28.08.1998 of the Reserve Bank of India, and in furtherance of the conspiracy, ICICI Bank took the entire shareholding of the promoters in NDTV (nearly 61 per cent) as collateral and then accepted prepayment of the loan by reducing the interest rate from 19 per cent per annum to nearly 9.5 per cent and, as a consequence thereof, causing a wrongful loss of Rs 48 crore to ICICI Bank and a corresponding wrongful gain to the promoters of NDTV – Dr Prannoy Roy, Smt Radhika Roy and M/s RRPR Holdings Pvt Ltd.
Now let us see what section 19(2) of the Act says:
19 (2) Save as provided in sub-section (1), no banking company shall hold shares in any company, whether as pledgee, mortgagee or absolute owner, of an amount exceeding 30 per cent. of the paid-up share capital of that company, or 30 per cent. of its own paid-up share capital and reserves, whichever is less:
Provided that any banking company which is on the date of the commencement of this Act holding any shares in contravention of the provisions of this sub-section shall not be liable to any penalty therefore if it reports the matter without delay to the Reserve Bank and if it brings its holding of shares into conformity with the said provisions within such period, not exceeding two years, as the Reserve Bank may think fit to allow.
The CBI’s case seems to be that ICICI Bank violated article 19(2) by lending against a pledge of 61 per cent of NDTV shares held by the promoter couple, Prannoy and Radhika Roy. While RRPR owned 29.18 per cent of NDTV, the Roys owned another 32.26 per cent in their personal capacity. One does not know if the bank informed the RBI of any special permission to lend against 61 per cent of NDTV shares.
But even if the violation can’t be excused, the CBI can’t take NDTV to the cleaners without making the bank, and the officials who sanctioned the loan of Rs 375 crore in 2008, party to the “criminal conspiracy”. A loan that big would probably need board approval. So is CBI going to chase the bank’s bosses on this violation of section 19(2)?
It is difficult to see how this line of investigation is going to help anybody – least of all the banking system and the economy. In fact, it will stymie efforts to clean up the bad loans mess, as public sector bank officials will now think twice about settling any loan with any promoter for fear of being seen as part of a “criminal conspiracy” to defraud the bank and its investors.
In any event, even if a violation of section 19(2) is established, one can hardly fault the promoters of NDTV for pledging more than 30 per cent of outstanding shares when the bank concerned was ready to lend against this collateral.
If the CBI is going to make anything against NDTV stick, it will have to do better than this. There may be other cases to follow up, but this one isn’t going to fly.
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