In this context, the recent judgement in the Mallaya extradition case, fought in a UK court, is instructive. While delivering her judgement in the case, chief magistrate Emma Arbuthnot had some harsh words for Indian banks. She wrote “if the criteria for lending to KFA (King Fisher Airlines) had been applied, if the background checks had been carried out, the loans should not have been granted. If the end-use certificates and all the other post sanction conditions applied, the loans would not have been misapplied in the way they were.”
The judge’s remarks are an indictment of the banking system in India, and obliquely the RBI itself. Many high value loans that eventually ended up as non-performing assets (NPAs) have been sanctioned incomplete and willful violation of existing guidelines issued by the RBI. Going by the judgement of Ms. Emma Arbuthnot, it appears that there was no intent to repay these loans right from the very start. The inference here is that the RBI was aware of such potential bad loans even as they were being sanctioned.
The active involvement of corrupt politicians,bureaucrats and executives of lending banks in bypassing established norms in consortium / multi-bank lending should have raised red flags at the regulator.The fact is that this has happened too often for comfort while approving large loans in Indian banks.