Probe Into East West Fund Diversion

In another development, the Indian Bank-led consortium of nine commercial banks has decided to restructure its total exposure to the company. The total outstanding of the company to the banks amount to Rs 209.43 crore as on January 31 this year over and above the Rs 101.18 crore limit in fund-based and non-fund based exposure to both airlines and the ticketing divisions. At a consortium meeting held on August 5, it was decided that Indian Bank, State Bank of India and Dena Bank will assess the restructuring exercise.

The East West management was not forthcoming to comment on the issue despite several attempts made by Business Standard. A senior East West executive in Delhi on Saturday admitted that CBI has initiated the probe. Nasirudeen A Wahid, chairman of East West Airlines could not be contacted.

 

The company, promoted in 1982 to pursue the objective of running a travel agency, was initially financed by Vijaya Bank. The airlines division, set up in 1992, was financed by a consortium, led by the State Bank of India. It approached Indian Bank for sanction of ad hoc limits for its airlines division for payment of aircraft lease rentals, payments to National Airport Authority, International Airports Authority of India and Indian Oil Corporation.

The Indian Bank branch at Nungambakkam High Road, Madras, allowed the excess in the book debts account of the company for the travel division from October 1993 on a regular basis. The balance was initially increased to Rs 51.35 crore in January 1995 and later to Rs 53.27 crore at the instance of former Indian Bank chief. According to documents available with Business Standard, when other consortium members failed to sanction their share of limits Indian Bank came to the rescue of the company "which resulted in huge irregularities in the account." The other consortium members are SBI and its two associates State Bank of Travancore and Hyderabad, Dena Bank, Allahabad Bank, Vijaya Bank, United Western Bank and Bombay Mercantile Cooperative Bank. All the banks have recalled their loans. Besides, Bombay Mercantile Coop Bank has filed a suit at the cooperative court.

Finance ministry sources said details regarding the sundry debtors against which drawings have been permitted were inadequate.

While other consortium members contained their exposure within the sanctioned limits, Indian Bank's exposure went far beyond the approved limits by virtue of indiscriminate excess allowed despite the specific directions of the board restraining it.

East West Airlines chairman, however, contested the claim stating the credit facilities availed were purely partial disbursement of facilities from the limits sanctioned earlier in the consortium meetings. "Out of the sanctioned limits of Rs 157 crore funded facilities for both divisions, only Rs 90 crore was disbursed in instalments by the consortium which was short of Rs 67 crore in our working capital requirements as assessed and sanctioned by the consortium. Out of the non-funded facilities, Rs 27 crore out of Rs 61 crore was drawn. The company has denied use of the remaining limits..." East West Airlines chairman has written to the Indian Bank. East West, according to him, has furnished additional collateral securities in the form of landed properties held in the name of the directors and their family members as well as equity holdings held by them. The firm has also sought immediate release of Rs 50 crore from the consortium of banks to arrest the deteriorating financial conditions of East West Airlines.