Indian police probe suspected US$90 million loan fraud at IDBI Bank

MUMBAI (REUTERS, BLOOMBERG) - India's federal police agency said on Thursday (April 26) it was investigating an alleged 6 billion rupee (US$90 million; S$119 million) loan fraud at IDBI Bank, and former senior bank officials were among those being investigated.

Police officials said as many as 15 senior IDBI officials, including former chairman and managing director M S Raghavan, former deputy managing director M O Rego, and former chief executive officer Kishor Kharat, were under investigation, as well as the companies that took the loans and nearly two dozen other individuals.

Raghavan, IDBI's former chairman, told Reuters he could not comment as he had not been informed of the developments.

Rego is currently the chief executive of Syndicate Bank Ltd and Kharat is now the CEO of Indian Bank.

Reuters calls to both men's mobile phones went unanswered. Reuters sent e-mails to Syndicate Bank and Indian Bank seeking comment, but there was no immediate response as it was outside business hours.

Searches were being conducted at 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 and a Finnish firm, the Central Bureau of Investigation (CBI) said in a statement.

The case registered 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 that 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 Bank's senior management and independent directors, who ignored existing guidelines and relaxed some of the conditions, the CBI said.

"It is a case of alleged fraud on the bank by then executives of the bank, then promoters of the group and the companies involved," 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 to the company based in the British Virgin Islands, 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 euros (S$83.8 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 Ltd, 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 jeweler 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.