Top IDBI Executives, Former BSE Chairman Named By CBI In Rs 743 Crore IDBI Loan Fraud

As India is grappling to come to terms with the PNB scam, another major fraud has rocked the banking sector. As reported in the The Times of India, IDBI bank officials are charged with orchestrating a loan fraud of Rs 743 crores in alliance with C Sivasankaran, former promoter of telecom firm Aircel. Sivasankaran has now joined the dubious list of famous defaulters Vijay Mallya and Nirav Modi. The CBI has filed three cases against 15 senior executives of IDBI for being complicit in this scam.

According to ANI, following are the accused named in the case – MS Raghavan, then CMD of IDBI, BK Batra, then DMD of IDBI, MO Rego, then DMD of IDBI and now serving MD and CEO of Syndicate bank, PA Shenoy, then Independent Directorate of IDBI, S Ravi and Nilad Karpe, then independent director of IDBI , K Biju George, current GM of IDBI, Manoj Alex, then regional manager of IDBI and the current DGM, Venka Krishnan, current GM, Subrata Gupta, then CGM IDBI and serving ED, Vinney Kumar, then ED, G Suneel Babu, then DGM IDBI and current GM of IDBI, B Rabrinathanath, then ED of IDBI, GM Yadwadkar, then ED and the current DMD, Kishore Kharat, then CMD of IDBI and the current MD and CEO of Indian Bank, Chennai.

The CBI has also named S Ravi, the chairman of Bombay Stock Exchange and former CMD of Bank of Baroda – P S Shenoy in the loan fraud.

The CBI charges against IDBI claim that during the fiscal year 2009 to 2012, fake loans were issued for nonexistent enterprises of pisciculture (fish farming) by availing Kisan credit card (KCC) using fake documents which inflated the value of collateral property.

As mentioned in The Times of India, these fraudulent activities were first uncovered at the Rajahmundry IDBI branch, East Godavari district, Andhra Pradesh. Both Battu Rama Rao and Damodaran are accused of sanctioning Rs 445.32 crore as fake loans for construction of nonexistent ponds/tanks, according to the case filed last week. Fresh figures have come up in the latest FIRs filed by the CBI wherein 38 private persons, posing as proper tiers of these so-called fish ponds, other than Sahoo, Damodaran and Rao have been accused of being involved in the fraud as aggregators.

According to Quartz, these fake loans were diverted to Sivasankaran’s other firms Finland-based Winwind Oy which has declared bankruptcy and Axcel Sunshine based in British Virgin Islands.

The modus operandi – the Rs 25 lakhs limit for KCC loans was raised to Rs 5 crores by the accused bank officials. Positive recommendations were given to the borrowers and the loan proceeds were disbursed without any scrutiny based on the orders of Damodaran. The guidelines state that the fish ponds should be located within 50 kms of the branch premises to sanction a loan, this condition was overlooked as per instructions by Damodaran and Rao. Similar frauds were orchestrated by Damodaran and Rao at the Bhimavaram branch, West Godavari district and Palangi branch, West Godavari. Lt Colonel B K Sahoo played the role of panel evaluator. He knowingly overvalued the collateral properties and increased the net worth of borrowers on paper.

Quartz reported that the CBI has pointed the involvement of senior management from IDBI in the scam and their utter disregard for existing guidelines and procedures as a flagrant violation of regulations.

This fraud is another chink in the armor for the already failing banking sector in India which is still recovering from the $2 billion scam at Punjab National Bank brought to light in February. As reported in Quartz, IDBI bank has been under the RBI watch list for having the most NPAs (non-performing assets) in Indian banks and 24.72% gross advances. IDBI shares took a beating at BSE yesterday as they fell by 3.5% in early trades, according to Livemint. These recent events are going to make it even more difficult for IDBI to redeem itself.

The government has taken several steps to counter this situation like creating a new Insolvency and Bankruptcy Code (IBC), recapitalizing banks to the tune of Rs 2.11 lakh crore to protect depositors’ money and trying to get rid of gargantuan non-performing assets worth Rs 7.34 lakh crore (as on September 2017). However, we also need better regulation on part of the RBI (Reserve bank of India) to spot such huge potholes during audits. Privatization of banks can be the way forward, it will make the banks more accountable to shareholders as they won’t have the taxpayers to bail them out every time they pass a bad loan. At present the government should ensure that the defaulters and bank officials involved in the scam are brought to book to create a precedence for the banking industry in India.