Competition Commission of India dismisses bank cartel complaint over gold backed security

India’s competition regulator (the CCI) has rejected a claim that 12 of the country’s biggest banks colluded over loans secured against gold.  The case comes at a time when competition authorities internationally are intensifying their competition and regulatory probes into financial services. 

The complaint was made by a non-banking financial company, Muthoot Mercantile.  It alleged that the banks, including some of the largest lenders conspired to offer their own loans at a “throwaway interest rate” of 4 per cent in an attempt to drive it and other smaller companies out of the market.

The complainant maintained that the banks – including the State Bank of India - managed to offer the low rates by classifying the loans as agricultural loans which were eligible for a reduction in the interest rate under a Reserve Bank scheme.

The CCI rejected the complaint stating that the complainant had “not placed on record any material which is indicative of any collusion or concerted practice” by the banks.

Although the complaint was not substantiated the case is of interest for three main reasons:

First, it confirms that Indian competition law – like its EU counterpart - applies to state-owned or affiliated enterprises such as the State Bank provided that they are engaged in economic activity (albeit in this case the CCI rejected the complaint).

Second, competition law can apply in sectors that are highly regulated. The case illustrates a familiar trend where competition and sector authorities may be called upon to examine the same practices.  The banks were apparently warned over their actions by the Reserve Bank back in 2012.

Third, the CCI appears to be taking a more measured approach to complaints raising allegations of cartelisation.  In its order the CCI notes that “parallel behaviour needs to be substantiated with the additional evidence or the plus factors to bring it into the ambit of  prohibited anti-competitive agreements”.  The case is a contrast with the CCI’s decision in the cement cartel case in June 2012 where it fined eleven cement manufacturers and a trade association INR 6300 crore for alleged cartelisation of the cement market in India.  The case has been criticised as being founded on purely circumstantial evidence of parallel behaviour.  The decision remains subject to appeal.

 

The CCI’s rejection of the complaint on the grounds of lack of evidence does not necessarily mean any let up in its enforcement activities.  But it does put into focus the CCI’s relative lack of success in implementation of its leniency policy and the absence of any established settlement policy.  Experience in other jurisdictions has shown that evidence provided by a leniency applicant has been the single most effective tool to root out anti-competitive  practices.  In a UK case in March 2010, on facts which have an uncanny resemblance with the allegations in the Indian case, the Office of Fair Trading (OFT) announced that Royal Bank of Scotland (RBS) agreed to pay a fine of £28.59 million following admissions that it had infringed UK competition law by disclosing confidential future pricing information to Barclays Bank.  Barclays as the leniency applicant escaped a fine.  The lesson is simple:  the CCI may struggle to obtain robust evidence of cartelisation unless and until it offers and implements a predictable policy over leniency.  It is now over 5 years since the CCI’s leniency policy went live and so far there has been no reported case of leniency being granted.

Suzanne Rab is the author of “Indian Competition Law, an International Perspective” (first published by Wolters Kluwer, May 2012; with a supplement of cartel regulation published in January 2013). The book is the first-of-its-kind international comparative analysis of the Competition Act 2002 published contemporaneously with the coming into force of Indian competition law and merger control.

Suzanne is also co-author of "Media Ownership and Control: Law, Economics and Policy in an Indian and International Context" (Hart Studies in Competition Law, 2014).