Over the last couple of years there has been at least seven cases of bank fraud that have rocked India as well as put millions of customers and their hard earned money at risk. In all of the cases, senior bank officials were found to have been involved in the scandals either through forgery or intentional irresponsible behaviour amounting to criminal activities
By Debdutta Ghosh
The PNC Bank Scandal (September 2019)
The latest banking scandal that rocked India was the Rs 4,355 crore bank fraud that happened at the Punjab Maharashtra Co-operative (PMC) Bank. The bank has a wide network of 137 branches across six states in India and established in 1984 as a single branch bank. The total deposit with the bank was about Rs 11,617.34 crore when the scandal hit it.
The blame fraud at the bank was accorded to the higher management of the PMC bank. It was alleged that the top officials of the bank had colluded with the Housing Development and Infrastructure Ltd (HDIL) and its group entities to organize the fraud. The senior officials of the PMC bank reportedly transferred 70% of the total credit facilities of the bank to HDIL and its associated companies. It was alleged that officials of the bank had colluded with the promoters of HDIL and allowed them to operate password protected ‘masked accounts’. Investigations found that the culprits had created 21,049 bank accounts under bogus names and addresses to conceal 44 loan accounts.
The software of the bank was also allegedly tampered to conceal these loan accounts. The scandal came to light after a group of women employees of the credit department of the PMC bank informed the Reserve Bank of India, the banking regulator of India, about the presence of the ghost accounts. Following the revelation of the fraud, the bank was placed under administration and a cap on withdrawal by its customers was placed. The Enforcement Directorate (ED) investigating the fraud has attached assets worth about Rs 3,500 crore of the HDIL group and the HDIL chief Rakesh Wadhawan and his son Sarang Wadhawan, who both of whom have been arrested, to try and recover a part of the loan amount. ED has alleged that some of the senior-most bank officials had received kickbacks from HDIL.
Lakshmi Vilas Bank Scam (LVB) (September 2019)
The Economic Offence Wings (EOW) of India alleged that senior officials of the Lakshmi Vilas Bank and the former promoters of Religare were had colluded to ditch the bank a total of Rs. 723 crore from a fixed deposit in the bank of Religare Finvest Ltd’s (RFL).
An FIR was filed against the key directors of the bank for cheating, breach of trust and criminal conspiracy.
The scandal came to light after a complaint filed by Religare Finvest Ltd (RFL), alleging that it was cheated as the loan that was given to the former promoters of Religare was done in a personal capacity by Lakshmi Vilas Bank based on the company’s deposits with the bank. According to the complaint filed by Religare Finvest, the lending arm of Religare Enterprises, the bank had siphoned off the money of the company invested in the bank as a fixed deposit and was diverted through a complex network of financial transactions.
IDBI Bank Ltd Scandal (March 2018)
In March of 2018, one of the leading banks of India – IDBI Bank Ltd said, that five of its branches in the states of Andhra Pradesh and Telangana had issued fraudulent loans of over Rs 773 crore. The company filed a case over the forgery alleging that a part of the loans, which were issued during fiscal years 2009-2013, for alleged fish farming businesses, were granted against fake lease documents of non-existent fish ponds. The bank also said that the crim inals had also inflated the value of collateral.
The company clearly said that this was an internal job and that two of its senior officials of the branches, who were responsible for processing and disbursing the loans, were involved in the crime. While the bank dismissed one of the officials, the other had already retired when the scandal broke.
The case was later transferred to the Central Bureau of Investigation (CBI) – the premier investigating agency of India.
Infrastructure Leasing & Financial Services Limited (IL&FS) Scam (September 2018)
The IL&FS is a systemically important Core Investment Company and is engaged in the business of giving loans and advances to its group companies which are engaged in the advancing loans to companies in a large number of sectors such as energy, transportation, financial services, etc. just to put things into perspective – the IL&FS group has at least 24 direct subsidiaries, 135 indirect subsidiaries, six joint ventures and four associate companies. At towards the end of 2018, the company had accumulated a debt of about Rs 91,000 crore and of this amount, about Rs 60,000 crore of debt were those that were still at the project level in sectors of including road, power and water projects. Between July 2018 and September 2018, a number of subsidiaries of the company failed to pay back loans and inter-corporate deposits to banks and lenders.
After intervention by the government of India and investigations by the Serious Fraud Investigating Office (SFIO), it was revealed that the group subsidiaries of the group had given away numerous and huge loans to completely undeserving companies. For example, one of its subsidiaries had given a loan of Rs 385 crore even though it only had a net worth of Rs 85 crore while another doled out a loan of Rs 223 crore to a company with a net worth of just Rs 9 crore. Very little no collateral were examined against the loans.
While the investigators charged senior officials and founders of IL&FS with allegations of forgery and criminal conduct, the Indian government imposed a 5 year ban on the auditors Deloitte Haskins & Sells and BSR & Co for their alleged role in helping hide bad loans at the bankrupt IL&FS.
Punjab National Bank (PNB) Fraud (February 2018)
This was arguably the largest bank scam of India in which a very renowned Indian jeweller Nirav Modi and his uncle Mehul Chowksi used fraudulent means to dupe the PNB of Rs 10,000 crore. The modus operandi involved the duo conniving with high ranking bank officials to forge fraudulent letter of undertaking (LoUs) issued by the bank and withdrew money to foreign bank accounts from the PNB. The businessmen never repaid a single penny to the bank but left India. None of the culprits have been nabbed yet despite the Indian investigators involving the Interpol.
A onetime celebrated jeweler, Nirav Modi had managed to get 1,213 false guarantees during a period of 74 months, with the first one being obtained from PNB’s Brady House branch in Mumbai on March 10, 2011. Corrupt employees of the bank had helped Nirav Modi and his associate companies, to obtain the LoUs – sometimes up to five in a single day. Modi then made use of them to obtain loans from foreign branches of Indian banks.
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