Bankers are worried after CBI arrests IDBI chief in suspected loan fraud case involving Vijay Mallya, call it ‘witch hunt’

The arrest of IDBI Bank Chairman Yogesh Agarwal and eight others in a loan fraud case involving Kingfisher Airlines founder Vijay Mallya has not gone down well with the bankers.

Bankers are worried and have termed the arrests as a ‘witch hunt’ after a Mumbai court remanded Agarwal and eight others to judicial custody.

Bankers are now raising questions on why strict action on other companies and state-owned firms were not taken in case of loan failures.

“The Kingfisher failure is a normal business failure. So many accounts have failed. Why are questions raised only about Kingfisher? How have banks given loans to (state-owned) Air India and discoms (power distribution companies), when their financial condition was equally bad?” KC Chakrabarty, formerly Reserve Bank deputy governor, told ET.

The Reserve Bank of India (RBI) has been pressurising banks to bring loan defaulters to books. In this backdrop, the Supreme Court has sought names of the country's biggest defaulters. Meanwhile, Mallya has maintained that he isn't guilty of any wrongdoing and has consistently sought to settle with banks over the Rs 9,000 crore that Kingfisher owes.

This pressure can also affect revival in credit as a strict process before loan sanctioning may delay credit sanction.

“We will see banks forming another layer of a committee to deliberate on loan proposals and this means that turnaround time will go up, affecting both banks and the borrowers. If a borrower fails to repay loans to PSU (public sector unit) banks, are bankers who sanctioned the loan accountable to CBI and CVC (Chief Vigilance Commission) which will see mala fide intentions?” a general manager at a bank, who did not want to be named, told ET.

However, consultant Ashwin Parekh told ET bankers will need to be reassured that they have nothing to fear. "The lenders' sentiment will need to be addressed,” he said.

Monday's arrests were linked to a loan of Rs 950 crore made by IDBI Bank. CBI has asked how IDBI Bank could lend to a company that's below investment grade.