Bank Fraud - Biggest So Far

Amount involved in the biggest Bank fraud unearthed is INR 22,842 Crore plus ( INR 228.42 billion). CBI filed FIR on 7th February, 2022. It took one and half year to treat the complaint of SBI as FIR. Exposure of SBI is INR 2,468.51 Crore ( INR 16.14 billion) . The scam involves 28 banks and financial institutions.

ABG Shipyard Ltd.,( `ABG') the company is in liquidation as per NCLT Order is the entity which did the fraud. ABG was a listed entity.

CBI complaint includes a forensic audit conducted by E&Y . Banks which took the hit are : ICICI - INR 70.89 billion, IDBI - INR 36.34 billion, SBI- 29.25 billion, Bank of Baroda - INR 12.44 billion, PNB - INR 12.44 billion, Indian Overseas Bank - INR 12.28 billion. Six banks have been name. There are twenty-two other banks.

The forensic audit report of E& Y states that the fraud took place in the form of ` diversion of funds, " misappropriation and criminal breach of trust with an objective to gain unlawfully at the cost of the bank's funds." " The money was used for purposes other than the purpose for which the funds were released by the Bank" .

The loan was declared NPA in July, 2016 and fraud in 2019. The company was referred by ICICI to NCLT, Ahmedabad as the company's registered office is under RoC, Gujarat.

CBI charged Mr Rishi Kamlesh Agarwal, for CMD, Santhanam Muthaswamy, Executive Director, Sushil Kumar Agarwal and Ravi Vimal Nevetia and another company ABG Internatonal Pvt. Ltd.,. for alleged offence of criminal conspiracy ( Section 120B of IPC), cheating, criminal breach of trust ( Section 409 of IPC) and Prevention of Corruption Act ( Section 13(2) and 13(1) (d) ).

Nationalised Banks took a hit from NPAs and frauds due to Kingfisher accouunt, Nirav Modi scam, Mehul Chokshi scams. These were followed by IL&LFS scam and the failure of Yes Bank. The scams took place due to the illegal objective of the use of funds by the borrowers. In these cases Bank Officials have been named for having failed in their duties which resulted in the fate of the accounts.

Banks and Financial Institutions do appraisal of the accounts before sanction and disbursement. Adequate security is taken to disburse the loans even then why do such scams occur ? The disbursed loans are monitored by the Banks . Documentations are entered into subsequently to keep alive the right of the Banks to claim the amount. For secured amounts the loan recovery period within which the amount can recover the amount is 12 years. Unsecured loans cannot be realised if the claim is not lodged from the last acknowledgement of the borrower.

Drainage of funds of Banks due to NPA and fraud weaken the business of Banks. Their lending capacity reduces. It leads to lessening of income. To survive, Banks must lend but it is essential that such lending must be monitored closely. Unless proper vigil is maintained the accounts may turn bad leading to complication in realisation. The security provided is utilised to realise the dues, if any. Banks often face difficulty in realisation from the sale of the security provided.

From the facts and circumstances of the NPAs and frauds it can be concluded that publication of quarterly results by listed entities cannot be taken for granted. Banks. Compliance can never taken to be full proof. Instead of ordering forensic audit after an account turns NPA Banks should order such audit on test check basis. Listing of securities mean many things not only for the company but also the economy pre-emptive steps is required. To-day investment in securities of the country are of great interest of investors. Banks need to study Balance Sheet of the borrowers with interest rather depend of the audited accounts submitted. Post mortem appraisal by the Banks is essential. They should not depend on out agencies.

Banks need to understand the working capital management of the borrowers. Submission of legal cases pending, show cause notices received and replied by the borrower should be needs to be reviewed each year. Borrowers should be made to share list of the above mandatorily and this should be made a condition of the sanction of the loan. Banks should check the list of creditors and debtors . Unsecured loans and advance needs to be checked.

With each loan default, NPA and fraud the banks capacity to lend is affected Accordingly it is important for banks to create a team of experts to interpret documents submitted by borrowers. Legal audit of accounts need to be taken up at random.

Indian Banks are saddled with NPAs. Frauds also surface occasionally . Unless pro-active steps are taken more such frauds are bound to surface. Apart from the post mortem study of already idenfied accounts pro-active steps to carry out scrutiny of accounts at regular intervals is a must.

If audits, results, checks by independent are there why are such frauds surfacing ? There needs to be analysis and understanding the objective of the borrower. This is never done.