These business houses secured huge loans from the banks after the 2008 financial crisis, but either defaulted or escaped by restructuring the loans

Big business houses that secured huge loans from public sector banks post-2008 financial crisis, but defaulted on repayments or charted an escape route through multiple restructuring of bad loans, have now come under the Central Bureau of Investigation’s scanner for suspected wilful misappropriation of public money, running into thousands of crores.

“An inquiry has been initiated into the public sector bank loan non-performing assets (NPAs) to understand the magnitude of the problem, which basically concerns the Finance Ministry. Big business houses have in the past procured loans worth thousands of crores and it is suspected that in several cases they have either defaulted or got the loans restructured, resulting in further delay in loan recovery by the financial institutions. Whether it amounted to wilful misappropriation leading to embezzlement of public money has to be enquired into,” a senior CBI official told The Hindu on condition of anonymity.

The official said the agency’s banking division had already started an internal inquiry. “It is only after we get to know the magnitude of the issue that we can zero in on specific business houses to ascertain their role in bank debt non-recovery. Sadly, we have noticed that the bleeding banks, due to various reasons, do not usually come forward to lodge complaints seeking a probe. This exercise will throw light on the irregularities, if any, in the process of loan grant and non-recovery/restructuring,” he added.

The CBI, which has also sought expansion of its banking probe division, has engaged experts as consultants for financial investigations.  

The soaring NPAs on account of bad loans have in the recent past resulted in a huge setback to financial institutions, especially public sector banks. A case in point is the State Bank of India, which saw gross NPAs rise to 5.56 per cent of total advances by this June-end, from 4.99 per cent a year ago. This caused a dip in the bank’s net profit.

The increasing cases of defaults and delayed debt recoveries have even attracted the attention of the Finance Ministry, which, a few days ago, asked the banks to carry out viability assessment of proposed projects, independent of the appraisals by leading banks, before granting loan approvals. The Minister had also recently said if the promoters were unable to pay back loans, they should be made to give up the management of the company.

Sometime ago, in a paper on corporate debt restructuring, Reserve Bank of India Deputy Governor K.C. Chakrabarty quoted statistics that revealed that the restructured advances ratio to gross advances had gone up from 4.87 per cent in March 2009 (a year after the financial crisis peaked) to 8.24 per cent in March 2012. By the 2012-13 financial year-end, it shot up to 10 per cent.

Today, the estimated gross outstanding advances are pegged at Rs.50 lakh crore, putting the restructured debt figure at roughly Rs.5 lakh crore, compared to Rs.2 lakh crore as recorded four years ago.