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)
Encl: Copy of RBI Case Letter
PS: For more details on ESG's Campaign on the BMIC Project please visit:
http://www.indiatogether.org/campaigns/bmic Text of RBI Case Order:
Reserve Bank of India
Dept of Banking Supervision
Mumbai Regional Office, Center 1, Coffe Parada, Colaba, Mumbai - 400005
DBS (MRO) No. 878/17.21/2002-03
Date: 26.8.2002
To:
L.F. Saldanha
Environment Support Group
S-3, Rajashree Apartments,
18/57 1st Main Road, S.R.K. Gardens
Jayanagar, Bannerghatta Road
Bangalore
Dear Sir/Madam,
Sub: Complaint against ICICI Bank
RBI Case No. 105/16.8.2002
We acknowledge receipt of your letter No. -- dated 24.7.2002 (with enclosures
as stated therein) and advise that we are looking into the matter.
Yours faithfully,
(P.S. Joshi)
For Chief General Manager
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Environment Support Group (R)
S-3, Rajashree Apartments
18/57, 1st Main, SRK Gardens
Bannerghatta Road, Jayanagar
Bangalore 560041
Telefax: 91-80-6341977
Tel: 91-80-6531339
Email:
esg@bgl.vsnl.net.in ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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