From failed steel to soul: Vinay Rai’s dubious reset and redemption

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₹5,338 crore. But what did Forbes know? That same year, his group companies Malvika Steels and Usha Ispat defaulted on loans worth close to ₹2,400 crore! Beneath the glittering facade of a sprawling conglomerate, a black fungus of financial manipulation had started to take root that would soon bring the entire edifice crashing. At the heart of the Ispat frauds was a complex system of inflated valuations for public issues, round-tripping of funds and misuse of bank loans.

Forensic investigations would later reveal a staggering array of irregularities, including a merry-go-round of inter-corporate deposits (ICDs) and loans, which created an illusion of robust transactions. Further, a vast network of over 200 shell companies was being used to route funds, obscure ownership and create fake suppliers and customers. Several phantom power projects existed only on paper, with funds allocated for these projects quietly diverted elsewhere.

Ispat also claimed substantial fake export income, much of which was found grossly inflated or simply non-existent. Estimates say more than $3 billion was syphoned off over a decade. Then there was corruption laced with nepotism.

In August 2000, when Kulwant Rai was on the board of Industrial Development Bank of India (IDBI), another group company, Koshika Telecom, was sanctioned a loan even as three of its four licences had been cancelled by the government for non-payment of licence fees. The wobbling empire finally crumbled when its paper-thin, filigreed margins were exposed during the global financial meltdown of 2008 and the steel industry collapsed. As banks tightened lending rules, the group could no longer roll over its loans.