RCom–SBI Saga: Corporate Fraud and the Missing Accountability

RCom case exposes systemic double standards in India’s fight against financial fraud, where bankers often escape scrutiny while promoters face the brunt.

By P SESH KUMAR

NEW DELHI, August 24, 2025 — The Central Bureau of Investigation’s (CBI) recent case against Reliance Communications (RCom) and its promoter, on the basis of a ₹2,000 crore exposure declared “fraud” by the State Bank of India (SBI), is the latest act in India’s theatre of corporate distress.

On the surface, the story looks simple: a promoter misled lenders, the bank discovered the deception late, and the investigative agencies stepped in to secure accountability. But scratch deeper, and an unsettling pattern emerges. While borrowers are cast as villains, the bankers who signed off on these colossal loans slip quietly into the role of innocent victims.

In other high-profile frauds like the Punjab National Bank (PNB)–Nirav Modi affair or Canara Bank’s tainted advances, the same investigative agencies did not hesitate to prosecute senior officers for negligence, misconduct, or collusion.

Why, then, should SBI’s officers be spared similar scrutiny in the RCom case? Is it because the two sets of cases are entirely different and there was no negligence, if not misconduct, in the case of SBI- RCom case?

The Fall of RCom

Reliance Communications or RCom was once the crown jewel of the promoter’s empire. By the mid-2010s, however, the company (it would like to say) was crushed by a mix of hyper-competition, regulatory battles, and unsustainable leverage. SBI alone had extended over ₹2,200 crore in fund-based loans and another ₹786 crore in guarantees.

By 2016, repayments faltered. The account went into default, and eventually RCom was dragged into the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code (IBC).

For years, proceedings crawled. The Committee of Creditors signed off on a resolution plan in 2020, but final NCLT approval never came.

Meanwhile, SBI classified the account as “fraud” in 2020, only to have it reversed after the Delhi High Court ordered a status quo. The Supreme Court’s 2023 ruling in State Bank of India vs Rajesh Agarwal changed the rules again, mandating that borrowers must be heard before fraud classification.

SBI re-ran the process, gave the promoter his hearing, and in 2024 re-stamped the account as “fraud (possibly absolving its officers of any misconduct).” That paved the way for the CBI to file its case in August 2025.

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The Official Narrative: Borrower as Villain, Bank as Victim

In its complaint and in public messaging, SBI argues that it was ‘misled’ by systematic misrepresentation (by the promoter too): financial statements, business plans, and cash-flow projections were deliberately inflated or disguised. This position paints the bank as the injured party and the promoter as the sole culprit. The CBI and ED appear happy to proceed on this footing—raiding premises, questioning the promoter, and tracing alleged fund diversion.

But this narrative raises an obvious question. How does “misrepresentation” absolve the lender of responsibility? Large loans are not sanctioned casually. They pass through layers of scrutiny—branch appraisals, zonal offices, credit risk committees, board approvals, external credit ratings, and annual renewals.

Officers are supposed to test assumptions, verify balance sheets, and demand collateral. If all these safeguards failed to catch misleading financials, was it mere negligence? Or was there collusion—an unspoken compromise of judgment under pressure, influence, or inducement?

The Role of the Personal Guarantee

The promoter did indeed provide a personal guarantee for RCom’s loans, including those from SBI. A personal guarantee means that if the company defaults, the promoter’s personal assets can be pursued. That is again a civil obligation, not a criminal offence. The fact of the guarantee doesn’t automatically prove fraud.

In fact, the promoter’s defence is likely to lean on this: “If I gave a personal guarantee, why would I intend to defraud? I have tied myself personally to the company’s debt.”

The counter-argument from SBI/CBI would be that personal guarantees do not exonerate fraud. A guarantee might have been given, but if simultaneously the promoter was window-dressing financial statements, diverting funds, or raising money on false pretences, the act still qualifies as fraud.

So far, the criminal act alleged against the promoter is not that he defaulted, or even that he gave a personal guarantee. It is that he misrepresented RCom’s finances and misused bank funds—acts that, if proven, amount to fraud. But this line between business collapse and criminal deceit is razor-thin.

Without concrete proof of siphoning or falsification, the case risks looking less like a fraud and more like another high-profile insolvency that was too big to rescue. And tracing fund diversion to the satisfaction of the Courts is the Achilles heel of the enforcement machinery- be it the CBI or ED.

When the Banker Is in the Dock: PNB and Canara

This is where the contrast becomes glaring. In the PNB–Nirav Modi scandal, it was not just the diamond merchant who faced prosecution. Senior PNB officers were arrested and chargesheeted for enabling fraudulent Letters of Undertaking that bypassed the core banking system. The case was framed not just as a borrower’s fraud but also as a banker’s failure.

In the Canara Bank cases, too, the CBI explicitly named officials in its chargesheets. Loans were sanctioned despite glaring irregularities—collateral undervaluation, end-use not monitored, and credit reports ignored. Investigators treated the bank’s officers as part of the problem, not passive victims.

The principle was clear: when senior officers are negligent, complicit, or wilfully blind, they cannot escape accountability. Public money cannot be squandered without responsibility being shared.

SBI’s Likely Argument: “Our Case Is Different”

SBI will likely argue that the PNB and Canara cases involved active collusion by bank officers, whereas in RCom’s case there is no evidence of officers deliberately bypassing systems or conspiring with the promoter company.

In PNB, Letters of Undertaking were issued outside the core banking system in clear violation of protocol. In Canara, loan appraisals were manipulated and collateral fraudulently overvalued with the connivance of insiders. Those were textbook examples of inside help, which is why bank officials were named as accused.

In contrast, SBI will claim that the RCom loans were sanctioned and rolled over through the normal channels of due diligence, based on audited financial statements, credit ratings, and business plans supplied by the company.

If those statements were misleading, the liability rests with the promoter, not the lender. The bank’s role, it would argue, was one of reliance on documents provided in good faith—not active facilitation of fraud.

This defence essentially boils down to “we were careless at worst, but not complicit.”

Testing the Validity of SBI’s Claim

This argument, while facially plausible, falls apart under scrutiny. The distinction between “negligence” and “collusion” is not always so sharp.

First, scale and sophistication of lending matters. When a ₹50,000 loan at a rural branch goes bad, one can excuse the banker for being misled by false paperwork. But when a ₹2,000+ crore exposure is at stake, the bar is infinitely higher.

Such loans go through multiple layers of appraisal, including credit committees and board oversight. SBI cannot credibly say it simply “relied” on borrower statements without deeper independent verification.

Second, due diligence is itself the banker’s duty. If financial statements were misleading, why did SBI not flag inconsistencies, demand forensic audits, or commission independent market studies?

Reliance on promoter-supplied projections without testing assumptions is not diligence—it is abdication. Courts and regulators have consistently held that negligence in safeguarding public funds can amount to misconduct.

Third, delayed recognition weakens SBI’s case. Defaults started in 2016, but fraud classification only happened in 2020 (and again in 2024 after reversal). What was happening in those intervening years? The rollovers and renewals granted to RCom despite mounting stress point to either systemic lethargy or deliberate avoidance of reality. Either way, SBI cannot paint itself as a passive victim.

Fourth, the regulatory framework blurs the line. RBI’s Master Directions explicitly require banks to maintain early-warning systems, monitor red-flag accounts, and verify end-use of funds. If misrepresentation escaped detection for years, that is a failure of compliance. In law, such failures are not excused merely because collusion was not “proved.”

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Why SBI’s Defence Is Weak

The crux is this: SBI wants to say “we were not like PNB or Canara because our officers did not actively cheat the system.” But absence of evidence of collusion does not prove absence of negligence. If public sector banks are held to a fiduciary duty to safeguard depositors’ money, then gross negligence in sanctioning and monitoring mega-loans cannot be excused as harmless oversight.

The law does not recognise a neat binary between “innocent reliance” and “criminal collusion.” There exists a spectrum: from ordinary negligence, to gross negligence, to wilful blindness, to active complicity.

Where on this spectrum SBI’s conduct in the RCom loans lies is precisely what investigators should be probing, rather than reflexively accepting the bank’s “we were duped” narrative- which appears to be the case.

Whither Duty of Vigilance

SBI may well insist that the RCom loans were fundamentally different from the PNB and Canara scandals because collusion was not proven. But this defence ignores the duty of vigilance that comes with sanctioning and rolling over multi-thousand-crore exposures.

In law and in equity, negligence of this magnitude cannot be brushed aside as “innocent reliance.” The absence of proven collusion should not translate into the absence of accountability.

If SBI’s argument is accepted, it creates a dangerous precedent. Borrowers could always be labelled fraudsters, while banks—even if spectacularly negligent—could be absolved so long as “collusion” cannot be pinned down. This tilts the scales of accountability unfairly and perpetuates the culture of impunity for bankers.

By contrast, the PNB and Canara prosecutions, whatever their flaws, at least recognised that frauds of such magnitude cannot occur without institutional failures on both sides of the lending equation. It is a quite different matter what ultimately happens in the PNB and Canara Bank cases- given the long winding and almost never-ending labyrinth of our legal processes.

Lessons from Uneven Justice

The RCom affair teaches us three powerful lessons. First, fraud is rarely a solo act. For thousands of crores to flow into a collapsing telecom company, multiple layers of the banking system had to look the other way. To punish only the borrower is to tell half the story.

Second, enforcement in India lacks consistency. In PNB and Canara, bankers stood in the dock. In SBI–RCom, they are invisible. This double standard corrodes deterrence, signalling to officers that diligence is optional and to promoters that banks are politically shielded.

Third, taxpayer confidence is the ultimate casualty. Every rupee written off is public money. When borrowers are vilified but bankers are excused, the spectacle looks less like justice and more like scapegoating. The culture of “phone-banking”—where influence secures massive loans with little scrutiny—flourishes in this grey zone.

The larger message is unmistakable: India needs a unified accountability framework where borrower fraud and banker negligence are probed with equal zeal, and where insolvency, fraud classification, and criminal prosecutions are coordinated instead of clashing. Unless both borrower and banker stand on the same side of the dock, accountability will remain selective and unconvincing.

Corporate Failures and Role of Bankers

The RCom case is not just about one failed telecom company or one indebted promoter. It is about how India deals with corporate failure, fraud, and the use of public money. By ignoring the role of bankers, the system creates a lopsided morality play that punishes one side and protects the other.

PNB and Canara showed that bankers can be held accountable. SBI’s treatment in RCom shows that they are sometimes not. Until that inconsistency is resolved, India’s battle against financial fraud will remain a half-truth—and justice, a half-measure.

(This is an opinion piece, and views expressed are those of the author only)

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