Mumbai/New Delhi: Investigations into the allocation of second-generation (2G) mobile spectrum, thus far confined to politicians and companies, have been widened to the lenders who financed the telecom firms.
The Central Bureau of Investigation (CBI) says it has discovered that some state-owned banks bypassed rules when they loaned funds to telecom firms to pay for 2G licences, according to three persons familiar with the matter.
The officials—two of them belong to CBI while the third is a top executive with a large state-run bank—confirmed that the sleuths have found certain irregularities in the internal processes followed by the banks. All three declined to be named due to the sensitivity of the matter.
The banking fraud cell of the federal investigative agency is currently examining whether the erstwhile Unitech Wireless Ltd (known by the brand name Uninor) received the tacit approval of its bankers to divert loans to group firms, one of the CBI officials quoted above said.
Loans to Swan Telecom Pvt. Ltd (now known as Etisalat DB Telecom India Pvt. Ltd) are also being inquired into, the official said. Under the current telecom norms, the licences can be hypothecated only for investment in the sector.
“We are looking into the matter if these deviations are in lieu of monetary benefits extended to the officials of the bank,” the official said.
CBI’s banking fraud cell has registered a preliminary inquiry report against unknown bank officials for lending term loans to Unitech Ltd, a real estate company that entered the telecom business, after allegedly finding that the money was routed to other group firms. The findings assume significance as the finance ministry has so far maintained that there is no evidence of irregularities in 2G loan disbursals by banks to telecom firms.
Unitech Wireless denied any wrongdoing in a response to questions from Mint that it availed of a bridge loan from a consortium of banks led by State Bank of India (SBI) “much after it had been awarded the licences for the purposes of funding its operations.” The company used the loans to build the telecom infrastructure, it said.
“Furthermore, the loan was secured after following every process prescribed by the bank and was backed by a letter of comfort from the world’s sixth largest mobile operator that is majority owned by the government of Norway (Uninor). Finally, the entire fund-based facility from SBI has already been repaid,” Uninor said. An email sent to Swan Telecom did not elicit any response.
In December last year, the Supreme Court had asked the agency’s banking fraud cell to investigate the loan exposure of public sector banks to telcos allegedly favoured by former telecom minister A. Raja during the spectrum allocation in 2008.
CBI has already arrested Raja, former telecom secretary Siddharth Behura and Shahid Balwa, managing director of DB Realty Ltd and one of the promoters of the erstwhile Swan Telecom for their alleged role in the 2G scam.
It has also questioned industrialists such as Anil Ambani of Reliance Group, Sanjay Chandra of Unitech and Prashant Ruia of Essar Group as part of its investigations.
State-run banks lent at least Rs 2,500 crore to Unitech and more than Rs 700 crore to Etisalat DB during the 2G allocation process in 2008-2010 and subsequently for the roll-out of services, according to documents reviewed by Mint.
Government-owned banks have loaned around Rs 14,000 crore to five new entrants who were allocated 2G licences in the form of short-term, working capital loans and bank guarantees, documents reviewed by Mint showed.
Typically, such large-ticket loans are approved by credit committees in banks that verify the projected end use of the loan, the repayment schedule and the operational parameters of the borrowing firm.
CBI’s finding indicates that these banks either did not have the competent authority sanctioning these loans, or they did not follow proper internal processes to ensure that the amount was not being diverted from the original purpose, the officials said.
These loan beneficiaries included Swan Telecom and Unitech Wireless. Their executives were recently questioned by CBI officials.
Exact loan amounts couldn’t be independently verified with lenders because none of them was willing to speak about the transactions.
The controversy over the 2008 issue of licences and spectrum came to a head in November last year, when the government’s auditor, the Comptroller and Auditor General of India, said in a report that the award of spectrum at below-market rates during this allotment and previous ones may have caused the national exchequer a notional loss of around Rs 1.76 trillion.
Senior officials of state-run banks confirmed that CBI officials have questioned some of their employees directly involved in the 2G lending, and found that some of the banks allegedly did not comply with internal process requirements while sanctioning loans to telcos since 2008.
“They have questioned some of the officials in the bank and have submitted the report. They have found some issues regarding the internal processes followed,” a top executive with a leading state-run bank told Mint.
A senior executive of another state-run lender said banks “were in a hurry” to give loans to telcos during the 2G allocation as it was a lucrative business.
“Many of them (companies) approached banks for short-term loans and banks did not go through all aspects of utilization,” the official said. “There was some hurry in decision making. Maybe, certain internal processes with regard to asset verification and credit audit may not have been done.”
Among state-run banks, SBI has an exposure of around Rs 10,000 crore to these telcos, Punjab National Bank around Rs 330 crore and IDBI Bank Ltd around Rs 1,000 crore, according to rough estimates provided by bank officials.
Between 31 March 2007 and 27 March 2009, banks’ overall exposure to telcos more than doubled to Rs 50,326 crore from Rs 19,446 crore, according to rating agency Credit Analysis and Research Ltd.