Banks in India enlisting private investigators to hunt down borrowers who vanish

A premier government-owned bank in India is hiring private detectives to track down absconding borrowers after a pair of super-rich jewelers quietly slipped out of the country without repaying a nearly two billion dollar loan.

Bad loans are a banker’s nightmare. And the Punjab National Bank – India’s second largest state-run lender – has been jolted out of its stupor by two high-profile diamond merchants - Nirav Modi and Mehul Choksi – who bolted abroad leaving PNB in the red. Just before Modi vanished, he was photographed with Prime Minister Narenda Modi and India’s wealthiest industrialists at the World Economic Forum meeting in Davos, Switzerland.

After Modi’s and Choksi’s flight, under-investigation PNB has dramatically invited applications from private detective agencies for empanelment to “supplement the efforts of its field officials” in bringing absconding defaulters to justice. Experts say that the move is somewhat like trying to shut the door of the stable after the horse has bolted.

Private detectives

Acknowledging that there are is no regulatory body for detective agencies, PNB has announced that only a member of the Association of Private Detectives and Investigators of India is eligible to apply provided it has at least three years’ experience.

The selected agencies’ job would be to “locate the borrower, co-borrower, guarantor and mortgagors, in and outside India, including their legal heirs who are either untraceable or not available at the addresses given in the bank’s records”

According to Credit Information Bureau (India) Limited, commonly known as CIBIL, PNB has Rupees 12,574 crores (a crore means 10 millions in India) in bad loans taken by 1018 borrowers. The combined bad loans of all Indian banks is Rupees 800,000 crores.

“Borrowers often go missing after taking loans. Banks have no idea about their assets or collateral. After taking the loan, borrowers divert the money to real estate or other businesses, details of which are not revealed to the lender,” a senior banker was quoted as saying after PNB decided to rope in private detectives.

In an interview to Al Arabiya, Subir Roy, columnist and author or Made in India: A study of emerging competitiveness (Tata McGraw Hilll), said that “empanelling private detective agencies to chase defaulting borrowers is ridiculous”. He observed: “The primary task of a bank is to know its customer well. Only the right kind of customers with the right kind of viable businesses should get loans. If a borrower's business is running into trouble the field officers should be aware of this and get the bank to take action in time so that at least some assets can be seized in time.”

According to Roy, “Runaway borrowers and vanished assets result from field officers and higher management being incompetent or corrupt or both. Engaging private detective agencies is a bureaucratic move which will make little difference; it will only allow the top management to be able to show they are doing something.”

Old-fashioned bank robbers

Vir Sanghvi, a former editor who is now a television presenter, remarked that old-fashioned bank robbers who braved police bullets and CCTV cameras have been replaced by politically connected tycoons who have mastered the art of appropriating borrowed money and running away, never to be brought to account and live in luxury in the world’s most glamorous cities for the rest of their life.

Sanghvi wrote: “Bank robbers who tunnel into vaults are wasting their time and effort. If they just set up a corporation and made friends with politicians, they would earn billions without doing anything. And they would never get caught or have to pay the money back.”

In the past, banks in India have deployed eunuchs or bouncers to embarrass or intimidate defaulters, staged silent protests outside borrowers’ homes and issued threats to publish defaulters’ names and photographs in newspapers to frighten them into repaying.

But enlisting private detectives – described by one newspaper as new age Sherlock Holmes – to trace defaulters and their assets reveals the magnitude of the mess banks have landed themselves in.