India probes alleged $120m bank fraud

IDBI's current and former top officials under probe over loans to two foreign-based firms

MUMBAI • India's federal police agency said it was investigating an alleged six billion rupee (S$119 million) loan fraud at IDBI Bank, and former senior bank officials were among those being investigated.

Police officials said on Thurdsay as many as 15 senior IDBI officials were under investigation. They included former chairman and managing director M. S. Raghavan, former deputy managing director M. O. Rego and former chief executive officer Kishor Kharat.

Companies that took the loans and nearly two dozen other individuals are also being investigated.

Mr Raghavan, IDBI's former chairman, said he could not comment because he had not been informed of the developments.

Mr Rego is currently the chief executive of Syndicate Bank and Mr Kharat is now the CEO of Indian Bank. Reuters calls to both men's mobile phones went unanswered.

Searches were being conducted in 50 locations, including New Delhi and Mumbai, for evidence of fraud carried out through the loan accounts of a company registered in the British Virgin Islands (BVI) and a Finnish firm, the Central Bureau of Investigation (CBI) said in a statement.

The case relates to criminal conspiracy, breach of trust by a public servant and cheating, according to the statement from the CBI late on Thursday.

IDBI said in a statement it had sought recovery of assets from the BVI-registered borrower after it became a bad loan. The bank said the CBI had been examining certain documents relating to the loan and had spoken to some senior officers.

But it did not provide any details of loans to the other company or name the bank officials being questioned.

According to the allegations, loans were granted to the companies by IDBI's senior management and independent directors, who ignored existing guidelines and relaxed some of the conditions, the CBI said.

The alleged fraud, arose from losses resulting from two loans, according to the CBI. The statement did not say how much IDBI recovered from the borrowers.

In 2014, according to the CBI, IDBI is accused of giving a loan of US$83 million (S$110 million) to the BVI company, which was used to pay off loans of associate companies from the same group, violating Indian regulatory guidelines.

The CBI also says IDBI gave the unnamed Finnish company a loan equivalent to €52 million (S$83 million) in 2010. The firm was showing stress, and in 2013 it was granted voluntary bankruptcy by a Finnish court.

IDBI said in the statement late on Thursday it had given a loan to Axcel Sunshine, a BVI-registered company, in February 2014, which became a non-performing asset in December 2015.

"The loan has been fully provided for," IDBI said. "The bank has initiated recovery actions to recover dues from the borrower in August 2016." Reuters was unable to contact Axcel Sunshine as no website could be found for the company.

India's Finance Ministry asked all banks to step up vigilance following a US$2 billion fraud uncovered in February at Punjab National Bank, the country's second-biggest state-run lender. Billionaire jeweller Nirav Modi was accused of masterminding the scam by using fake guarantees. Punjab National Bank shares have lost almost 40 per cent over the past year.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on April 28, 2018, with the headline 'India probes alleged $120m bank fraud'. Print Edition | Subscribe