The loan frauds in Indian banks have deep legs. After the PNB fiasco and Chanda Kochhar's alleged irregularities at the ICICI bank, the Reserve Bank of India (RBI) itself has come under the lens, in a shocking turn of events.

In the latest development, two former deputy governors of the central bank have been questioned by the central investigation agency over massive loan defaults by Vijay Mallya's Kingfishe Airlines. The CBI summoned the high-ranking executives at the central bank after the Serious Fraud Office found that some bankers had a role in helping the financial fugitive get loans for Kingfisher, even as the airlines was sinking.

The CBI asked the former deputy governors why they had given regulatory clearance for the airline sector, without which Kingfisher would not have been able to avail Rs 6000 crore in loans at a time when its financials were in dire straits.

Vijay Mallya
Vijay Mallya has issued a statement on loan default charges.Reuters

Earlier in April, the CBI had questioned former RBI deputy governor Harun Rashid Khan as part of its investigation into Rs 13,500 crore Punjab National Bank loan scam. Khan was quizzed about the lapses at the central bank that allowed jeweller Nirav Modi to perpetrate the massive loan fraud and remain undetected for a long time.

The Times of India reported that the CBI team confirmed that the central bankers have been questioned. The RBI decision in 2010 to include the airline sector in the corporate debt restructuring (CDR) scheme might have had a role to play in the irregular loan sanction to Kingfisher, the CBI suspects.

Eventually, the Mallya-promoted Kingfisher sank under the weight of its debts, creating a nearly 10,000 crore hole in the banking sector.

The serious fraud investigators had found that the Rs 8,000-crore Debt Recast Package (DRP) for Kingfisher had many shortcomings, the Indian Express had reported. The package, which was drafted by the investment banking arm of a public sector bank, had failed in carrying out 'independent viability study of the (financial) projections,' the report said.

"The banks also did not critically analyze and consider the various remarks made by the auditors in the audited financials of KFAL as at 31.03.2009," the report added. it also said that the bank had not done due diligence on the valuation of the brand Kingfisher Airlines which was valued at Rs 4111.00 crore at the time of DRP and which formed part of more than 60 per cent of security value offered.

rbi rule deposit of rs 5000 more than demonetisation modi govt currency ban
The Reserve Bank of India (RBI) seal is pictured on a gate outside the RBI headquarters in Mumbai, India, February 2, 2016.Reuters file

Separately, it was reported that the CBI investigation against former Reserve Bank of India deputy governor K C Chakrabarty is continuing. It had been reported earlier that Chakrabarty had been denied permission to leave the country after he was questioned several months ago and look out notice was issued against him.

The lookout notice was issued against him in connection with a forgery case filed by the Indian Overseas Bank against a Delhi-based travel company. Chakarabarty was supposed to travel back to London in early May and had requested withdrawal of the notice. But CBI refused to do so, citing previous instances in which people refused to return to the country, the Business Standard reported.