The Enforcement Directorate has taken preliminary steps to probe the functioning of yet another flagship project of the LDF government – the Kerala Infrastructure Investment Fund Board (KIIFB). The ED has written to the RBI asking whether the KIIFB's move to float 'masala bonds' in London Stock Exchange had its nod.

Chief Minister Pinarayi Vijayan had on two occasions earlier openly expressed his fury at the ED's decision to subject Life Mission and Kerala Optic Fibre Network (K-FON) to a detailed probe. He had termed the ED move an attempt to destabilize the government.

Following the ED's reported interest in the KIIFB, finance minister T M Thomas Isaac said the probe could put on hold Kerala' development but said the government had nothing to fear. Isaac, who had been questioning the intention of the Comptroller and Auditor General, also wanted to know on what basis was the ED initiating a probe.

“It is true that the CAG report had indirectly blamed the RBI for giving KIIFB the sanction to float 'masala bonds'. But I have never made this public,” the finance minister told reporters on Sunday. “I would like to know on whose complaint the ED is taking up the case,” he added.

The CAG report, which is yet to be tabled in the Assembly, has found all of KIIFB's borrowings, not just 'masala bonds', as unconstitutional

Besides the CAG indictment, chartered accountant Ranjith Karthikeyan, with close links to the Sangh Parivar outfit Swadeshi Jagran Manch, had gone to court against the 'masala bond' issue. He is represented by KPCC general secretary Mathew Kuzhalnadan.

Ranjith's main contention is that the government had not secured the RBI's consent. What it has is only a no objection certificate (NOC). The KIIFB had approached the RBI as the infrastructure arm of the Axis Bank. Ranjith alleged in his pliant that the RBI was not told that the KIIFB was powered by government grants.

Even then, Karthikeyan argued that the RBI's NOC specifically stated that the KIIFB should secure the necessary approvals and permission as per law from other regulatory bodies.

Isaac, on the other hand, said nothing more was required after the RBI's approval. He said the RBI gave sanction to the KIIFB to issue masala bonds up to Rs 2672.8 crore in a letter dated June 1, 2018. On March 22, 2019, the RBI also issued the loan registration number. It is on the basis of this that 'masala bonds' were floated on March 29 and the bonds were listed in the London Stock Exchange on May 17, 2019.

The 'masala bond' issue had mopped up Rs 2,150 crore and, according to Isaac, more than 90 percent of the money had already been utilised. He said the utilization details of 'masala bonds' - the project for which it used, the bill details, the remaining fund - are given to the RBI monthly using RBI's Form ECB2'.

However, according to sources, the ED would be probing the SNC-Lavalin angle to the 'masala bond' issue. Top CPM source said this was just another attempt to keep a cloud of mystery hanging over the chief minister during the time of the elections.

Even Isaac had conceded that substantial chunk (opposition says more than 90 percent) of the 'masala bonds' floated by the KIIFB were purchased by CDPQ, the Canadian pension fund company said to have crucial stakes in SNC-Lavalin, the controversial company with whom Pinarayi Vijayan had entered into an allegedly corrupt deal while he was power minister in 1995.

The main opposition charge is that the LDF government had allowed CDPQ to profit from KIIFB's masala bonds. The coupon rate of 9.723 per cent, they say, is exorbitant. Isaac but says that it was the best deal on offer.

According to him, the interest rate in the domestic market at that time was far higher than what KIIFB had to pay for the money mobilized from 'masala bonds'.