Five years after it offered a generous overdraft facility to Robert Vadra's Sky Light Hospitality, Corporation Bank has initiated an internal probe to determine if the transaction violated any regulatory norm.
Overdraft facility refers to overdrawing permitted by banks in current accounts.
The bank's senior management had asked its Delhi regional office (the overdraft was provided by the bank's Friends Colony branch in New Delhi) to send details of the transaction that dated back to 2007-08, sources privy to the development told Business Standard on Wednesday.
The branch had given an overdraft of Rs 7.94 crore to Sky Light, which, at that time, had a paid-up share capital of only Rs 1 lakh.
Vadra, son-in-law of Congress President Sonia Gandhi, is already embroiled in a controversy over his dealings with DLF.
"Since the matter is in the public domain, as a matter of prudence, the head office has sought details of this transaction from the Delhi regional office. The bank has specific norms for overdraft sanctions. We are examining if there was any violation," said a senior Corporation Bank executive, on condition of anonymity.
Bankers said while the Reserve Bank of India (RBI) did not have specific guidelines on overdraft facilities, according to the central bank's customer acceptance rules, banks have to monitor transactions with 'politically exposed persons', or PEPs. The rules also mandate "intensive due diligence for high-risk accounts, including those involving close relatives of PEPs, and in case PEPs were the ultimate beneficiaries".
A former Corporation Bank official, part of the senior management team in 2007-08, however, said, "If I remember correctly, this (Vadra's) application did not reach the chairman or the executive director."
B Sambamurthy was the chairman and managing director (CMD) of Corporation Bank during 2006-08. He was succeeded by J M Garg, currently Central Vigilance Commissioner.
Ajai Kumar, chairman and managing director of Corporation Bank, did not respond to phone calls and text messages.
Transactions such as overdrafts are governed by the central bank's norms relating to securities against loans and unsecured credit. Every bank has its own set of rules on overdraft facility. Bankers say this facility is typically unsecured, but seldom offered to companies that don't have any existing credit line with the bank. Lenders provide the overdraft after calculating the value of the underlying securities against other credit facilities.
"A bank will not offer an overdraft unless the borrower has other credit facilities. For example, if a borrower has offered collateral worth Rs 2 crore and taken cash credit of Rs 1 crore, the bank may be willing to offer him an overdraft facility of Rs 15-20 lakh. The guidelines on how the value should be computed are clear," said a senior official with a global consultancy firm.
He added under no circumstance would the value of the overdraft be higher than the collateral. It was not immediately known if Sky Light Hospitality or Vadra, in his personal capacity, had offered any security against the overdraft.
Sometimes, overdrafts are permitted without any security for a short period to enable the borrower to tide over a financial hurdle. According to regulatory norms, such 'clean overdraft' for a small amount may be permitted at the discretion of the branch manager to customers whose business dealings with the bank have been satisfactory.
Senior officials at Corporation Bank confirmed the money was repaid by Vadra within the scheduled period.