The fear factor: An overzealous CBI could cramp decision-making in banks

The first line of the Central Bureau of Investigation’s mission statement delineates its task as upholding the Constitution of India and the law of the land “through in-depth investigation and successful prosecution of offences”. The wide ambit of the country’s premier investigative agency’s responsibilities and its storied lack of independence from the ruling dispensation of the day has created an institution whose remit ranges from political corruption to corporate fraud, much of it at the behest of whichever regime is in power. At the best of times, then, the CBI’s investigations, especially through the dreaded, open-ended preliminary enquiry, can have a destabilising impact on the political economy, as it did during the telecom scandal. Its recent actions are no less restrictive in nature. In at least two cases in the last couple of months, the CBI has shown signs of an unwarranted zeal. 

The first was the first information reports against 15 senior executives of IDBI Bank in a case involving two separate loans, given in 2010 and 2014, to two separate companies of the original owners of Aircel. Reportedly, after the first company failed to repay a ~3.22 billion loan and filed for bankruptcy, IDBI Bank gave another loan of Rs 5.23 billion to another group company with the intention of recovering the first loan. IDBI Bank has said it has made full provisioning for the loans, which became non-performing. It is an open question whether the bankers could have foreseen the way the telecom sector would capitulate. After all, at the time the loans were given, Aircel was the sixth largest mobile service provider in India with a healthy subscriber base of 79 million. So it is difficult to ascertain whether it was an act of fraud or a bona fide decision that went wrong. 

The second case relates to the so-called 80:20 scheme. The CBI questioned a former Reserve Bank of India deputy governor on the reasons for “rushing through” a circular on the central bank’s gold import policy, which was introduced in 2013 by the United Progressive Alliance (UPA) government to curb gold imports. The CBI’s enquiries were linked to the collusive fraud between Punjab National Bank (PNB) and jewellers Nirav Modi and Mehul Choksi. Though the deputy governor said he went by the book, the questioning by the CBI sent alarm bells ringing through the banking system. 

Such over-vigilance is likely to have a debilitating impact on the decision-making process in Indian banks, especially in the state-owned ones. For instance, it is likely to affect bank credit to industry, which barely grew through most of 2016-17 under the weight of systemic non-performing assets, but had started to show small signs of revival. If public and private sector bank officers anticipate investigation by the CBI for conducting routine business, they are unlikely to take any decision. A politically induced climate of fear in Indian banking could cause economic stagnation as damaging as the “policy paralysis” that famously immobilised the UPA — that too, just as the green shoots of revival are emerging. The CBI needs genuine independence so that it can acquire the credibility it needs badly for people to trust its actions.