Sunday, September 29, 2002

RBI studying ICICI’s funding of BMIC project

By Visvas Paul D Karra
DH News Service
BANGALORE, Sept 28

The Reserve Bank of India (RBI) is looking into a complaint against ICICI Bank over financing the Bangalore Mysore Infrastructure Corridor Project (BMICP) after a complaint registered by a greens group about banking violations.

According to reports, ICICI is leading a consortium of financial institutions, which includes among others HUDCO and LIC, to release funds for the Rs 2,000-crore-project being developed by NICE (Nandi Infrastructure Corridor Enterprise).
The RBI, which is the country’s banking regulatory authority, has taken cognisance of a complaint by Bangalore-based NGO Environment Support Group (ESG) which said that the financing of BMICP based on State Guarantees would be in violation of the RBI circular issued to all financial institutions in February on “Financing of Infrastructure Projects.”

Para 3 of the circular states: “In respect of infrastructure projects, where financing is by way of term loans or investment in bonds issued by government owned entities, banks/ financial institutions should undertake due diligence on the viability and bankability of such projects to ensure efficient utilisation of resources and creditworthiness of the projects financed.

Banks should also ensure that the individual components of financing and returns on the project are well defined and assessed. Lending/ investment decisions in such cases should be based solely on commercial judgment of banks/ financial institutions. There should be no compromise on proper credit appraisal and close monitoring of the projects financed and banks should ensure that only projects that are intrinsically viable are financed. State government guarantees may not be taken as a substitute for satisfactory credit appraisal and such appraisal requirements should not be diluted on the basis of any reported arrangement with the Reserve Bank of India or any bank for regular standing instructions/ periodic payment instructions for servicing the loans/ bonds.”

When contacted, officials of the RBI’s Department of Banking Supervision in Mumbai, informed Deccan Herald that based on the ESG complaint, a letter had been sent to ICICI Bank seeking clarifications. But all efforts by Deccan Herald to elicit a response from the “Infrastructure Project Group” of the ICICI’s Mumbai office failed.

The ESG referred to press statements made by NICE that the BMICP’s financial closure was based on “comfort letters” (guarantees) issued by the Government of Karnataka, and said this was in gross violation of RBI’s February circular.
According to State government officials, two “comfort letters” had already been issued to NICE and a third letter for an experimental two-lane expressway would be handed to the project developer after a Cabinet decision.

When contacted, Mr Ashok Kheny, managing director of NICE, said there were no financial guarantees involved in repayment of loans to ICICI Bank by the State government.

Mr Kheny, further wondering about the true intentions of ESG, said “NICE is puzzled as to why ESG keeps misrepresenting facts to the public.”

Says ESG Coordinator Leo Saldanha, “We raised this issue of clear violations in the financial closure with the financial institutions but they have not responded.”

Mr Saldanha asserts that the RBI is clearly trying to stop financial scams which have rocked the nation’s economy. “In this case it is like stemming the rot before it sets in.”