Almost five years after it offered a generous overdraft facility to Robert Vadra’s Sky Light Hospitality, Corporation Bank has initiated an internal probe to examine if the transaction violated any regulatory norms.
The bank’s senior management has asked its Delhi regional office (the overdraft was given by Corporation Bank’s Friend Colony branch in New Delhi ) to send details on the transaction that dates back to 2007-08, sources familiar with the development told Business Standard today.
The branch had given an overdraft of Rs 7.94 crore to Sky Light, which at that time had a paid-up capital of Rs 1 lakh only. Vadra, son-in-law of the ruling United Progressive Alliance's (UPA) chairperson Sonia Gandhi, is already at the centre of a controversy over his property dealings with DLF.
"Since the matter is in public domain, as a matter of prudence, the head office has sought details on this transaction from the Delhi regional office. The bank has specific norms for overdraft sanctions. We are examining if there has been any violation," a senior executive of Corporation Bank said requesting anonymity.
Bankers said while the Reserve Bank of India (RBI) did not have specific guidelines on overdraft facility, the central bank’s customer acceptance rules say banks need to closely monitor transactions with 'politically exposed persons' (PEP). The rules also mandate “intensive due diligence for high-risk accounts including those involving close relatives of PEPs and where PEPs are the ultimate beneficiary”.
A former official of Corporation Bank who was part of the senior management team during this period, however, said, "If I remember correctly, this (Vadra’s) application did not reach the chairman or the executive director."
Ajai Kumar, chairman and managing director of Corporation Bank, did not respond to phone calls and text messages.
B Sambamurthy was the chairman and managing director of Corporation Bank between 2006 and 2008. He was succeeded by JM Garg, who is currently the vigilance commissioner at the Central Vigilance Commission (CVC).
Transactions such as overdraft etc are governed by the central bank's norms relating to securities against loans and unsecured credit. Also, every bank has its own set of internal rules on overdraft facility.
Overdrawing permitted by banks in current account is typically referred to as overdraft facility.
Bankers said an overdraft facility is typically unsecured in nature but is seldom offered to corporates who does not have any existing credit lines with the bank. The lenders provide the overdraft after calculating the value of underlying securities against other credit facilities.
"A bank will not offer an overdraft unless the borrower has some other credit facilities. For example, if a borrower has offered collateral worth Rs 2 crore and taken cash credit of Rs 1 crore, the bank may be willing to offer him an overdraft facility of say Rs 15-20 lakh. The guidelines are clear on how the value should be computed," said a senior official with a global consultancy firm.
He added that under no circumstances the value of the overdraft facility will be higher than that of the collateral. It was not immediately known if Sky Light Hospitality or Vadra in his personal capacity had offered any securities against this overdraft.
But sometimes overdrafts are also permitted without any security for temporary periods to enable the borrower to tide over some emergent financial difficulty. As per regulatory norms, such 'clean overdraft' for small amounts can be permitted at the discretion of the branch manager to such customers whose business dealings with the bank have been satisfactory.
Senior officials at Corporation Bank confirmed that the money was repaid by Vadra within the scheduled period.