Vijay Mallya‘s plan to celebrate his 60th birthday in India this December has run into rough weather.

The Central Bureau of Investigation (CBI) has booked Mallya, along with former Kingfisher Airlines Chief Financial Officer A Raghunathan, for criminal conspiracy under the Indian Penal Code.

Unnamed officials of nationalised IDBI Bank have also been booked for criminal conspiracy, in addition to criminal misconduct under the Prevention of Corruption Act, 1988. On a day of high drama, CBI sleuths raided five locations, including Mallya’s ostentatious villa in Candolim, Goa. Kingfisher and IDBI offices in Mumbai and Bengaluru were also searched.

Documents with dna indicate that IDBI used public deposits to lend hundreds of crores to Mallya’s airline on dubious guarantees given by Mallya and his airline. A loan agreement between IDBI and Mallya’s airline on December 2, 2009, shows that the now-defunct carrier was given a loan of Rs 750 crore.

The deal was struck at IDBI’s Mission Road branch in Bengaluru. The loan was sanctioned by IDBI in 2009 despite knowing that Kingfisher was due to repay loans worth Rs 1,438 crore from various Indian banks over the next one year. Kingfisher had taken over Rs 6,000 crore in loans. It came at a time when Kingfisher had sacked close to 100 pilots, indicating that it was planning to downsize operations after running up huge losses.

What has surprised investigators is the lenient terms at which the Rs 750 crore loan was given. The hypothecation deed between Kingfisher and IDBI shows that the loan was given after the airline pledged its credit card receivables and insurance policies. In plain terms, if Kingfisher would have defaulted on loans, IDBI would have to recover the money by reclaiming the airline’s credit card receivables. Furthermore, the agreement between IDBI and Mallya’s airline states that “credit card receivables should be kept in marketable condition” by Kingfisher.

The financial accounts of Kingfisher show that it never made a provision for credit card receivables while accounting for repaying its debt in 2009-10. Between 2009 and 2012, when Kingfisher finally shut shop, there had been a massive pruning of workforce and large-scale cancellation of Kingfisher flights across various sectors.

CBI sources said that colluding IDBI officials never made an attempt to monitor Kingfisher’s credit card receivables and whether they were being maintained at levels sufficient for the bank to recover its Rs 750-crore loan.

On December 11, 2009, another deed was signed between Mallya’s airline and IDBI. This time, all of Kingfisher’s trademarks – including Fly Kingfisher (name and label), Flying Models, Fly the Good Times, Funliner, Kingfisher (label and mark) – were also pledged in addition to the airline’s credit card receivables. At the time the loan was given by IDBI, Kingfisher’s brand value was pegged by a private audit firm at a little over Rs 4,000 crore, and it owed a similar amount of money to Indian banks.

dna had reported in 2014 that Kingfisher’s brand value was merely Rs 6 crore. As of date, Kingfisher trademarks have become ‘junk’ and no one wants to buy them. In other words, IDBI used Rs 750 crore of public deposits to fund an airline in 2009, whose debts, defaults, losses, operations and brand value were in free fall.

To be fair to IDBI, it wasn’t the only bank to which the ‘junk’ trademarks were pledged. Most of the 17 banks that lent money to Kingfisher were pledged the same trademarks, in addition to a personal guarantee by Vijay Mallya himself. The worst-hit was State Bank of India (SBI), which was the largest lender and is struggling to recover even a fraction of its Rs 1,700 crore loan to Kingfisher.

In addition to the Rs 750-crore loan, IDBI Bank also pumped in money into Kingfisher Airlines by purchasing preference shares in the now-ailing airline in 2011. On January 3, 2011, Rs 112.5 crore was taken out of public deposits from IDBI to make the transaction. A couple of months later, on March 31, 2011, another Rs 17.45 crore was pumped into Kingfisher – this time through the purchase of equity shares by IDBI. This despite the fact that Kingfisher’s debt had reached 50% of its net worth. Six months after securing additional financing through the issue of shares to IDBI and other banks, Mallya announced the closure of Kingfisher Red – the low-cost airlines under the Kingfisher brand.

CBI officials say that IDBI violated norms while extending a credit line of Rs 900 crore to Mallya’s airline. An RBI circular issued to banks on September 19, 2008, raised concerns about the manner in which banks forming a consortium were lending to corporate houses. The circular instructed banks to obtain a declaration from borrowers about the loans already taken by the loan- seeker from other banks.

RBI had also asked banks to exchange information with each other about the borrowers’ account in addition to regularly obtaining the company’s credit reports. CBI sources say that IDBI officials turned a blind eye to adverse credit reports, and, in some cases, also did not share information about Kingfisher with other banks in the consortium led by SBI.

Sharing this information would have reduced the exposure of other banks to Kingfisher. By the time Kingfisher shut operations without repaying its debt totalling over Rs 7,000 crore, RBI issued another circular reprimanding Indian banks for not sharing information with each other. The failure to do so, RBI said, had led to an exponential rise in the bad debts of Indian banks.

The CBI’s heat will be felt more on the ‘unnamed IDBI officials’ rather than Mallya & Co. Kingfisher Airlines, Vijay Mallya and the company’s CFO A Raghunathan have been booked under sections of the Indian Penal Code, where the maximum punishment is 6 months in jail. Since Mallya and Co stand accused of being partners in criminal conspiracy in a crime that does not invite death penalty, they would serve no more than six months in jail, if found guilty after the CBI concludes its investigations.

The bank officials have been booked under the more stringent Prevention of Corruption Act that involves a jail term of seven years for a public servant found guilty of criminal conspiracy and criminal misconduct.

dna’s past investigations on Kingfisher Airlines has indicated how many banks bent over backwards in lending money to Mallya’s airline. CBI sources have told dna that its investigations into IDBI Bank has also revealed the collusion of other smaller nationalised and private banks in indiscriminately lending public deposits to Kingfisher Airlines. An email sent to IDBI did not elicit a response at the time of going to press.

http://www.dnaindia.com/india/report-cbi-raids-5-vijay-mallya-premises-books-liquor-baron-officials-2133481