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From diamond merchants to fish farmers, why is defrauding Indian banks so easy?

30 March, 2018

Are Indian bankers sloppy? Are they corrupt? Or is it just dumb luck that India’s banking sector is in the throes of a fraud season?

While the embers from the Rs 13,000 crore Punjab National Bank fraud involving diamond merchants Nirav Modi and Mehul Choksi, and the Rs 3,700 crore scam involving Vikram Kothari of Rotomac Pens have yet to die down, newer allegations have already surfaced.

Union Bank of India has filed a complaint against Hyderabad-based Totem Infrastructure while IDBI Bank has reported a Rs 772 crore fraud in which suspicious loans had been issued for fish farming in Andhra Pradesh.

The Central Bureau of Investigation has booked as many as 41 individuals in the IDBI Bank case. Effectively, the new revelation means that if the bank is unable to recover the money, almost a tenth of the Rs 7,881 crore it received this month via a capital infusion from the government, as part of the Rs 2.11 trillion recapitalisation plan unveiled last year, will go down the drain. Ironically, IDBI Bank is the biggest beneficiary of the recapitalisation plan aimed at reviving the sagging fortunes of state-owned banks.

In fact, after the PNB fraud emerged, media reports said the government may have to increase the bank’s share of the recap pie from the Rs 5,473 crore that was set to be infused into it earlier.

Little wonder then that the Reserve Bank of India (RBI) is worried about the state of IDBI Bank’s health. According to a report in The Economic Times, the RBI has written to the finance ministry expressing concerns about the bank’s financial health and asking the latter to take remedial measures. Citing unnamed RBI officials, the report said that IDBI’s mechanism for identifying bad loans is deficient.

Owing to these concerns, the government has been unable to pare its stake in the bank to below 50%, and follow through with its plan of turning it around on the lines of Axis Bank.

But if some earlier allegations that resurfaced earlier this week are anything to go by, big-ticket bank fraud may not just be limited to government-owned entities but could also involve large private-sector banks and a few of India’s most celebrated bankers.

Earlier this week, The Indian Express reported that law enforcement agencies were investigating a web of transactions involving Deepak Kochhar, a businessman and the husband of ICICI Bank chief executive officer Chanda Kochhar, her bank and Venugopal Dhoot, the promoter of the Videocon Group.

The news report detailed how in December 2008, Deepak Kochhar, along with two relatives, set up a company—NuPower Renewables Pvt. Ltd—with Dhoot, who then gave the company a Rs 64 crore loan through a fully owned entity, before transferring the company’s ownership to a trust headed by Kochhar, for just Rs 9 lakh.

This transaction, the report said, raised serious issues of conflict of interest, nepotism and a possible quid pro quo, as just six months before this transaction, Dhoot had received a Rs 3,250 crore loan from ICICI Bank, of which Rs 2810 crore remains unpaid. Moreover, last year, the Videocon account was declared a non-performing asset (NPA).

ICICI Bank, on its part, has said that no favour was done to Dhoot or his company and that it had replied to all the questions raised by regulators. Videocon, too, has denied any wrongdoing.

To be sure, these allegations are not new, and had been made by a Videocon shareholder in 2016. But the fact that they are resurfacing at a time when banks are besieged by allegations of fraud, will certainly not augur well for the banking industry.

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Abhishek Yadav . 3 weeks ago

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From diamond merchants to fish farmers, why is defrauding Indian banks so easy?

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