THIRUVANANTHAPURAM: The Reserve Bank of India (RBI) has stated that it had granted only a "no-objection" to the Kerala Infrastructure Investment Fund Board's (KIIFB) masala bond issuance and it was the borrower’s responsibility to obtain other necessary approvals.
"The no objection was given under the Foreign Exchange Management Act, 1999, in terms of the then prevailing instructions.The borrowing entities are expected to obtain necessary approvals of other regulatory authorities/government, where necessary," the RBI said in response to an RTI query by The New Indian Express. However, he bank did not reveal the other regulatory authorities concerned.
The RBI's evasive response gains significance in the wake of the adverse findings on KIIFB and its masala bond issuance in the Comptroller and Auditor General's (CAG ) annual report on state finances for 2018-19.
RBI says it has no role in monitoring repayment
Finance Minister Thomas Isaac had kicked up a row by publicising the contents of the report, which is yet to be tabled in the assembly. The CAG is reported to have stated that the masala bond issuance did not have the sanction of the Central government. The minister, while alleging a political conspiracy behind the CAG’s observation, had cited the RBI’s clearance in his defence for masala bonds.
According to him, RBI was the sole binding authority. The central bank also maintained that it had no role in monitoring repayment. As per the RBI’s master direction on external commercial borrowings, the borrowers are required to report transactions to the Department of Statistics and Information Management (DSIM) of the RBI through the agency bank on a monthly basis.
However, on a question on whether it was monitoring the repayment of the KII FB’s masala bonds, the apex bank said: "Reporting is meant for the collection of statistics of forex flows and not for monitoring of repayment by borrowers." The RBI’s stand on audit requirement is seemingly favourable to the KIIFB.
To a question on the audit requirement for entities issuing masala bonds, the bank said it has not prescribed any. This makes the Opposition’s criticism on lack of proper auditing irrelevant. The finance minister was not available for comments.
'State government is regulator for KIIFB'
KIIFB CEO KM Abraham said that the state government is the regulator for KIIFB. On whether the RBI stand was contradictory to the finance minister’s argument, he said: "RBI monitors as admitted, but is not responsible for the borrower’s compliance. So both RBI and the finance minister are correct. In fact, the RBI cannot take up a repayment enforcement authority's role as repayment and associated risks are marketdetermined."
On the RBI’s position on audit requirement, he said: "The monetary authority cannot work as auditor of borrowing or the borrower's loan. In the case of KIIFB, the audit requirements agreed mutually with the lead investor are at three levels - statutory auditor of prescribed standing, peer review auditor of specified qualifications and the KIIFB's internal audit wing."