Reserve Bank to investigate ICICI
The RBI's Banking Supervision department has opened a case
against ICICI Bank
over the financing of the Bangalore Mysore expressway project.
The Department of Banking Supervision of the Reserve Bank of India (RBI) has
filed a case against the ICICI Bank. The complaint was brought by a Bangalore
based environmental NGO over financing of the controversial Bangalore Mysore
Infrastructure Corridor Project (BMICP). BMICP involves the development of an
expressway, several townships and other facilities in the corridor
between Bangalore and Mysore.
In its complaint dated 24 July 2002, the Environment Support Group (ESG)
brought to the attention of the RBI that the financing of BMICP based on
State Guarantees would be in absolute violation of a circular issued by
the RBI in February 2002. The RBI had instructed all banks and financial
institutions on “Financing of Infrastructure Projects”. The circular stated
amongst other requirements that "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.”
ESG pointed out in the complaint 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. Neither the State Government agencies
or the financial institutions concerned have not contested this claim.
In particular, 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.
The Enron-Maharashtra saga is a classic case of such economic misadventures.
ESG's Leo Saldanha states categorically that "it would not be an exaggeration to
address BMICP as the 'Enron' of Road Development."
In the absence of the disclosures to the contrary as well as press statements
from the GoK, it is widely believed that the state government continues to
back this project. Readers can find India Together's coverage of the campaign
on questioning clearances given to BMICP on the
BMIC home page.
Correspondence with various financial institutions
including the RBI's response to ESG are available here