PRESS RELEASE SEPTEMBER 05, 2002
RBI files complaint against ICICI Bank over financing of Bangalore Mysore Infrastructure Corridor Project
The Department of Banking Supervision of the Reserve Bank of
India (RBI) has filed a Case (No. 105/16.8.2002) against the ICICI Bank based
on a complaint brought by Environment Support Group (ESG) over financing of the
controversial Bangalore Mysore Infrastructure Corridor Project (BMICP).
In its complaint dated 24 July 2002, ESG brought to the attention of RBI that the financing of BMICP based on State Guarantees would be in absolute violation of the Circular No. IECD No. /08.12.01/2001-02 dated 20 February 2002, issued by the Reserve Bank of India to all banks and financial institutions on “Financing of Infrastructure Projects”. Para 3 of the Circular states:
“3. 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 utilization 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.” (Emphasis added)
The complaint brought to the attention of RBI that Mr. Ashok
Kheny, MD Nandi Infrastructure Corridor Enterprise (project developer) has
repeatedly claimed that the highly controversial BMICP’s financial closure is
based on a “comfort letter” issued by the Government of Karnataka. Either the State Government agencies or the
financial institutions concerned have not contested this claim. In particular, ESG has raised this issue
with the financial institutions in June 2002, but has had no response from
them.
RBI’s case against ICICI Bank, based on ESG’s complaint,
must be viewed in the context that its February Circular is a clear direction
to Financial Institutions to put an end to a series of Bank financed scams in
Infrastructure Development, that threatens the long term economic security of
the country. Enron is a classic case
of such economic misadventures, and it would not be an exaggeration to address
BMICP as the “Enron” of Road Development.
Leo F. Saldanha Nagini Prasad Rajmohan Pillai
Coordinator –ESG Campaigns Coordinator Coordinator (Infrastructure Finance Research)