Saturday, October 06, 2012

DLF Vadra and Role of Bank Officials

This relates to sanction of unsecured loan of Rs.60.00 crores by DLF to Mr. Robert Vadra , son-in-law of Sonia Gandhi, High Command Congress Party and then selling of costly properties to same Mr. Vadra at negligible price is by no means a good act from banking point or from investor's point of view.In  lieu of such charity , DLF gets reportedly huge area of land at negligible cost by state government of Harayana and that of Delhi. This is clearly misuse of power .( Read below about the financial health of DLF)

This report is true or false ,I do not know but it is hundred percent certain that this story will become  a matter of history very soon.The question is  who will investigate? CBI, IT or ED , none has the courage to expose and accept the bitter truth. 

Similarly , it is true that sanction of unsecured interest free loan by DLF to its own buyer is gross violation of bank's norms stipulated for compliance by loan sanctioning bank. Credit officials should have  objected  such entry even before sanction of such loans. But unfortunately Credit processing officer in a bank which prepares proposal for sanction of loan to companies like DLF normally do not want to raise such points at least when the case is related to high profile person or companies which are having good relation with ED or CMD or top ranked officers of the bank. 

Normally when ED or CMD make a call to subordinate office to sanction a credit proposal, none of the officers have guts to focus on negative points in proposal, rather they polarize all positive points of the credit proposal and all members of Credit Approval Committee (CAC) put their signature without any objection.

In most of the credit proposals when the company has many sister concerns, the diversion of fund from one company to other sister concern companies is very much common. In the case of DLF, the sanction of unsecured loan to son-in-law of High command of ruling party was taken very casually and bank might have treated such unsecured loan as loan given to affiliates or to suppliers of inputs.

In our country it is the culture that if relative of any VIP comes to office, entire team stands in que to welcome him or his relative or even friends with flower bouquet in hand and they are ready to spend as much as possible to extend red carpet welcome and ready to sacrifice all laws and rules to oblige such high profile persons. This is one of the main reasons behind rise in bad assets in all govt. banks. None can stop its further rise as long as we worship flattery and bribery culture. Concept of CAC suggested by RBI in recent past has also become a mere formality.

Obviously action of DLF vis -a -vis Vadra in allowing unsecured interest free loan and selling the flats and lands at negligible price is unethical and tantamount to direct fraud with investors and bankers. It is undoubtedly irregular from banking point of view or from investor point of view; but it is also true that none of banker have courage to tell spade a spade. It is however possible that some person or group out of investors protest such blatant misuse of scarce resource by DLF and may also resort to legal action.

But lastly the chapter will be closed because it is related to Damad of Sonia. Crux of the matter is that in cases related to VIP, top ranked officers and ministers or politicians advice subordinate everything on phone or verbally and hence they can never be trapped though they are the main culprit. It is always the low level officers who are made scapegoat whenever the exposure of such evil deeds required some punitive action under public pressure.

Staff accountability is never fixed on any of top officials or on any top ranked bank officials whenever loan accounts of a high profile borrower like DLF  turns into Non Performing Assets of a bank. There are many such high value NPA accounts in banks. It is only in low value NPA accounts that a junior officer or a clerk is taken to task when the account goes bad.

 DLF gave Vadra property cheap to get favours from Congress: Kejriwal

Book ODs vs bank ODs
This is an letter published in Business Standard to clarify what is bank OD and what is Book OD

This refers to the report “Who to believe: Vadra’s bank or balance sheet?” (October 12). To any accountant, the explanation for the overdraft is pretty straightforward. The clue lies in the phrase “book OD” reflected against the Corporation Bank entry.

A book OD arises when the drawer of a cheque issues a cheque with insufficient balance in his bank account. As any accountant will tell you, the issuance of a cheque will deplete the bank balance and in terms of the double-entry accounting principle, a corresponding asset account will be created — this could either be a fixed asset or reflected as “loans and advances” if it was an advance/part payment.

n Sky Light’s books of account, the bank balance (which should ordinarily show a debit or positive balance) has become a negative number — hence, will be recorded on the liabilities side of the balance sheet and shown as a book OD.

Corporation Bank is absolutely correct in asserting that it never sanctioned a formal overdraft facility, i.e. one in which clients would be permitted to overdraw their account up to a particular limit. And you will agree that Corporation Bank, in this instance, cannot be held responsible for its customers action of drawing a cheque when it had an insufficient balance.

The issue to consider is whether Sky Light had sufficient funds in its account with Corporation Bank when the cheque was presented for payment in the next financial year, and the answer to that is presumably “yes”.
Vikas Kulkarni, Mumbai

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