RBI fines 12 banks Rs 1.5 crore for poor due diligence in Deccan Chronicle loans

MUMBAI: The Reserve Bank of India has fined 12 banks Rs 1.5 crore for not following proper guidelines in advancing loans to the Deccan Chronicle group, which has defaulted on dues to the extent of Rs 4,000 crore.
The RBI had carried out a scrutiny of the loan and current accounts of Deccan Chronicle Holdings in certain branches of these banks in late 2013. Based on its findings, the RBI issued show-cause notices to these banks in March 2014, to which each bank submitted a written reply.

"After considering the facts of each case and the individual bank's reply, as also, the personal submissions, etc by some of the banks before its Committee of Executive Directors, the Reserve Bank came to the conclusion that some of the violations were substantiated and warranted imposition of monetary penalty," RBI said in a statement.

Among those fined are Andhra Bank (Rs 10 lakh), Axis Bank (Rs 15 lakh), Canara Bank (Rs 10 lakh), Corporation Bank (Rs 10 lakh), HDFC Bank (Rs 5 lakh), ICICI Bank (Rs 40 lakh), IDBI Bank (Rs 15 lakh), IndusInd Bank (Rs 10 lakh), Kotak Mahindra Bank (Rs 10 lakh), Ratnakar Bank (Rs 5 lakh), State Bank of Hyderabad (Rs 10 lakh), and Yes Bank (Rs 10 lakh).

What was unusual about the loans was that these advances were not backed by enough security. The mortgaged assets are expected to fetch a third of the loan exposure. Secondly, most of the lenders were unaware of the extent of leverage by the company and the exposure of other lenders to the group. Sources said that the RBI was shocked that advances were made by lenders without speaking to each other.

This action is not intended to pronounce upon the validity of any transaction or agreement entered into between the bank concerned and the borrower, the RBI said.

In July, Canara Bank, which has an exposure of Rs 350 crore to Deccan Chronicle, said that the company's promoters had approached the bank for restructuring. However, the bank had asked for a one-time settlement as the promoters might not be in a position to meet the huge-funding requirement.

Last year, the CBI had filed a case of fraud and criminal conspiracy against Deccan Chronicle Holdings chairman T Venkattram Reddy, vice-chairman and MD T Vinayak Ravi Reddy, vice chairman P K Iyer and the company's auditors CB Mouli & Associates.