Rs. 7.94 crore was extended to Sky Light Hospitality
Finance Minister P. Chidambaram may have described the controversial business dealings of Sonia Gandhi’s son-in-law as transactions involving “private individuals” but the disclosure that the public sector Corporation Bank had extended an overdraft of Rs 7.94 crore in 2007-2008 to Robert Vadra’s Sky Light Hospitality when his company had total resources of only one lakh rupees has left officials at the Mangalore-based lender scrambling to understand the circumstances in which the transaction took place and whether it conformed to normal lending guidelines.
Asked what amount Corporation Bank would normally extend as overdraft to a borrower with a company whose issued capital was Rs.1 lakh, Ajai Kumar, Chairman and Managing Director, Corporation Bank, told The Hindu, “It is not a question I can answer until I get the full facts. You should understand. You have to take the full picture.” He cited client confidentiality for not sharing the information, even if he were to get it, on Mr. Vadra's business with the bank. However, he added that he could get the full facts from the branch in Delhi “may be by tomorrow” [Thursday].
Details of the overdraft were reported in Business Standard on Wednesday, which noted that the money—which was used towards the first instalment on a Rs 15.38 crore parcel of land in Manesar, Haryana—was returned to the bank by Mr. Vadra a year later. The land itself was sold by Mr. Vadra to DLF for Rs 58 crore.
It is not clear from Sky Light’s balance sheets what collateral, if any, was put up for the overdraft.
B.K. Divakara, General Manager (Credit), Corporation Bank, told The Hindu: “As of date, we have no liability from that person. It [the overdraft given by the Bank] was two to three years ago. No one is aware who was there that time (sic). We have to take up the details.”
About norms followed by the Bank for extending overdrafts, he said: “There is no such fixed upper limit. It depends on the merits of each case. It cannot be generalised.”
A highly-placed source within the bank told The Hindu that Corporation Bank extends overdrafts to customers based on their “business projects, net worth and past record.” Commenting on the size of the overdraft, one official said that in this particular case, “on the face of it, he [Vadra] can’t be given [an overdraft of that amount]. If [he] has, they [the Bank officials] have to see why he has been given [it].” “Unless he is very regular and well meaning, it is a risk,” he added.
A general manager of another public sector bank said that he could not give a “yes” or “no” reply to whether this specific overdraft could be justified. However, he noted that given the capital of the company, the overdraft amount “definitely” appeared disproportionate.
In August 2011, the Central Vigilance Commission (CVC) had issued a memo to the Department of Financial Services of Corporation Bank seeking an explanation from its former CMD, Ramnath Pradeep, on “noticed lapses” in giving unsecured loans. The CVC, in the memo, had directed the DFS to take “immediate action” to stop the CMD from continuing “the abuse of authority”.
Top executives of the Bank at that time took out a signature campaign to gather support for a memorandum appealing to former Finance Minister Pranab Mukherjee to “save” the bank.
The CMD when Mr. Vadra got his overdraft was not Mr. Pradeep but B. Sambamurthy, currently director of the Institute for Development and Research in Banking Technology, Hyderabad. Mr. Sambamurthy told The Hindu he had no recollection of the overdraft.
Keywords: Robert Vadra, Vadra-DLF link, Corporation Bank overdraft, Sky Light Hospitality, lending guidelines
another nagarwala case in the making?
Banks do take risk at discretion. Vadra was probably considered as a good safe risk.It is understood that the overdraft was cleared in a year or less. We have so many crores of rupees blocked as non performing assets with the banks.This hullabaloo about overdraft taken 5 years back and returned with in one year , is more political.
It was desperate times when the Corporation bank issued over draft as seen from their petition to then finance minister to save the bank. RBI is the right authority to investigate.
Asking FM if it is illegal to give an overdraft of such a huge money to an unproven individual by any bank, is like asking Dawood Ibrahim if it right to tell a lie. I am only waiting for the day when this Harvard Graduate is going to make his Alma mater proud in a different stroke. PC has used all the wisdom that he has acquired wisely for his personal gains and sooner or later the truth is going to surface. Unfortunately there are too many scams in our country and the most versatile and well camoflaged ones will take longer to get exposed.
Banks are subject to annual statutory audits before finalizing their
Balance Sheets and Profit and Loss accounts and also are subjected to
inspections under Sec. 35 of Banking Regulation Act. These are
statutory checks on the overall functioning of banks, including
lending activities, based on sound banking practices in accordance
with the directives and guidelines of the RBI . As internal checks and
balances, the management structure in banks is framed with graduated
discretionary/sanctioning limits allocated to different levels of
management engaged in lending activities in tune with the loan policy
of the bank that involves permissible levels of secured and unsecured
advances and loans, sectoral exposure levels etc. and the eligibility
or otherwise of the borrower applicants with due attention to their
financial status and track record .Will FM say to the agitated
shareholders of this PSU Bank that this type of huge advance to a
'private individual' does not need a probe?
One has to see as to what are the guidelines of the Reserve Bank of India on the Indian Public Sector Banks on such huge overdrafts. This may help the authorities to analyse the matter further. One of the leading Public Sector Banks in India would not give any loan beyond one crore rupees to an NRI individual even such a person has a fixed deposit over one crore in the same bank.
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