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Exclusives - 30 April, 2020

What compels the Modi government to write off bad loans of wilful defaulters?

The RBI that has been rejecting RTI applications seeking the list of defaulters, finally disclosed that loans worth Rs. 68,607 cr of 50 major wilful defaulters have been written off... #LoanwaiverofWilfuldefaulters

By Pervez Bari & Samuel Mathai

New Delhi: What was the compulsion that the Modi government written off bad loans of wilful defaulters, like Nirav Modi and Mehul Choksi, when thousands of Indian farmers committed suicide demanding waiving off of their simple loans and the government did not, asks Muhammad Shafi, national general secretary of the Social Democratic Party of India (SDPI).

In a press statement Shafi deploring the Reserve Bank of India (RBI) and the Central government said that lakhs of farmers in the country under the burden of debt demanded from the government to waive off their loans which the government did not do. On the other it has written off Rs. 68,607 crore bank loans taken by 50 major wilful defaulters, who are influential.

RBI maintains records of loans above Rs 5 crore given by banks, both fund and non-fund based, in its Central Repository of Information on Large Credits (CRILC) database. If any entity defaults, the RBI captures it.

The RBI that has been rejecting RTI applications seeking the list of defaulters, finally complied with the Supreme Court order to publish the list after four years, and has, replying to an RTI application, disclosed that loans amounting to Rs. 68,607 crore of 50 major wilful defaulters have been written off till September 2019.

The RTI was filed by Saket Gokhale, an activist, on March 19, and he received the list on April 24. It lists defaulters till September 30 last year, which means either the RBI did not update the list, or further wilful defaults above ~5 crore did not happen in this period to update.

Though the then RBI Governor Raghuram Rajan had sent a list of the defaulters to PM Modi's office (PMO) as back as 2015, the government was putting it into the freezer. Both the PMO and the Finance Minister have been dodging the queries about the defaulters. In a period of Indian economy undergoing severe decline, the impact of this write-off will be massive, said Shafi.

He said, Modi is turning a blind eye to the miseries of the poor citizens who struggle for once-a-day-food, and helping the influential to plunder the wealth of the country with ease.

Shafi alleged that Prime Minister Narendra Modi-led NDA Government created the biggest NPA ever - it was 2 lakh crore in 2014 and now it is over 14 lakh crore. Modi Govt. has no money to give to the states.

The Central government still owes about Rs.30,000-34,000 crore to the states towards their share of Goods and Services Tax for December 2019 and January 2020, even while the state governments are in the forefront of the fight against the Corona virus and struggling with their finances. Till this crisis began, Rs.1.5 trillion of State money was in the Government of India securities. What is Modi Govt. doing with all the money that belongs to the states? Now Modi Govt. has availed about Rs.12,000 crore ($1.5 billion) loan from Asian Development Bank (ADB) for “immediate” response (after 3 months) to COVID-19, said Shafi.

He pointed out that another RTI response has shown that the government continued to collect money even after abolishing Krishi Kalyan Cess on July 1, 2017. The Centre collected over Rs 1,300 crore under this cess. Collecting money in the name of tax that no longer exists raises serious questions about the government’s intentions. Interestingly, the government has not yet revealed how the money, which was collected in the name of a cess that does not exist, is being spent.

Shafi urged the central government to recover bad debts of these wilful defaulters instead of writing it off and to book them for financial misappropriation and cheating.

However, Congress leader Rahul Gandhi on Tuesday said he had asked the government in Parliament the names of the top 50 bank loan defaulters, but the Finance Minister did not answer his question.

“Now the RBI has given the names of Nirav Modi, Mehul Choksi and many of BJP’s “friends” in the list of bank frauds. That is why this truth was held back from Parliament,” Gandhi said in a tweet in Hindi.

The definition of a wilful default is lengthy and conditional, but it simply points to a default by anyone who has the means to pay but won’t.

Gitanjali Gems tops the list with Rs 5,492 crore written off. The much publicised Kingfisher Airlines is in the top-10 list with a write-off of Rs 1,943 crore. Gitanjali is followed by REI Agro, with an exposure of Rs 4,314 crore, and Winsome Diamonds and Jewellery at Rs 4,076 crore.

Gitanjali Gems, owned by Mehul Choksi, was a darling of the stock markets. Soon after the Nirav Modi scam came out in the open, the Central Bureau of Investigation (CBI) found that Choksi and Modi used the same tactics to defraud banks. Choksi, Modi’s maternal uncle, used to open letters of credit in the name of foreign suppliers.

The duo was helped by a few Punjab National Bank employees. Both Modi and Choksi showed fake transactions among various offshore entities and took Indian banks for a ride. The CBI and Enforcement Directorate filed a chargesheet against Choksi and other top officials of Gitanjali Gems.

However, Choksi fled to Antigua and Barbuda, where he is currently facing extradition proceedings. Modi was arrested in London and has been in jail since March 2019. Both Modi and Choksi jointly made a $2 billion hole in Indian banks’ books. Choksi’s other firms, Gili India and Nakshatra Brands, also have had loans of Rs 1,447 and Rs 1,109 crore, respectively, written off.

PNB was also taken for a ride by Chandigarh-based Kudos Chemie in 2014. Banks lent the firm Rs 2,326 crore. The bank said in 2016, the Directorate of Revenue Intelligence had initiated action against the company for violation of the Customs Act and the account became a non-performing asset in March last year.

In between, the bank tried to sell the loan to an Asset Reconstruction Company (ARC) but failed to find a buyer. According to an ICRA rating report in July 2014, the company was placed in the default category after it failed to repay banks.

ICRA said Kudos Chemie incurred inventory loss in fiscal 2014 on part write-down of inventory of a new product as it would not meet the desired quality specifications and required further processing. For this, the company planned to set up additional facilities.

Ruchi Soya is another name on the RBI’s list. The company was recently taken over by Patanjali Ayurved, after banks initiated Insolvency and Bankruptcy Code proceedings against it. The RBI says banks have written off Rs 2,212 crore in the Ruchi Soya account. Interestingly, Indian banks didn’t just fund Patanjali’s acquisition, they even funded its equity contribution to a large extend.

Patanjali Ayurved pledged its entire shareholding in Ruchi Soya Industries to SBICAP Trustee for the Rs 4,000 crore loan, according to a filing on the exchanges.

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