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15 senior bankers named in India’s latest loan fraud

By Nupur Anand

Another institution has now been dragged into the Indian banking sector’s cesspool.

Over a dozen senior employees of IDBI Bank, a mid-sized state-run lender, have been accused of perpetrating a Rs600 crore ($90 million) fraud in collusion with C Sivasankaran, former promoter of telecom firm Aircel.

The Central Bureau of Investigation (CBI), India’s premier probe agency, has booked 15 bank officials, including former bank chief Kishor Kharat and former deputy managing director Melwyn Rego. While Kharat is now CEO of another state-run lender, Indian Bank, Rego now heads Syndicate Bank.

Others booked on IDBI Bank’s side include former executive directors, deputy managing directors, and general managers. The CBI has also named Sivasankaran, along with 24 of his employees.

The accused bank officials are being questioned for granting a loan to two of Sivasankaran’s firms, which he allegedly diverted to his other firms.

The agency is now conducting searches at 50 locations in 10 different cities in this connection, an April 26 CBI press release said.

This is the latest in a series of frauds uncovered in the Indian banking sector since the $2 billion scam at Punjab National Bank came to light in February this year. These frauds are adding to the woes of a sector already burdened with a rising pile of toxic loans.

IDBI Bank has the highest level of gross NPAs among all Indian banks, at 24.72% of gross advances and is already under RBI’s watch list. These additional management-related trouble don’t augur well for the bank. Last year, several officials of the bank were booked for loans granted to Kingfisher Airlines, promoted by Vijay Mallya, India’s most famous defaulter. Authorities had questioned senior officials’ decision to grant loans to the ailing airline despite defaulting on previous loans.

Modus operandi

In October 2010, IDBI Bank had sanctioned a Rs322 crore loan to Finland-based Winwind Oy, one of Sivasankaran’s firms. Later, the company applied for bankruptcy and the loan turned sour three years later.

In February 2014, IDBI sanctioned another loan of Rs523 crore to Axcel Sunshine based in British Virgin Islands, another company headed by Sivasankaran. The loan raised by Axcel Sunshine was allegedly fraudulently used to pay the dues held by other group companies, including Win Wind Oy.

“(the repayment was) in flagrant violation of the regulatory guidelines of Reserve Bank of India on foreign investments in India,” said the CBI. “It was also alleged that the loans were granted to said companies by the IDBI Bank at its highest decision-making level comprising of the senior most management and even independent directors, disregarding the existing guidelines, instructions & procedures and subsequently, various conditions were relaxed, or all together ignored.”

In an April 26 notice sent to the exchanges, IDBI Bank admitted to having extended a loan to Axcel Sunshine,  which turned a non-performing asset (NPA) in December 2015. “The loan has been fully provided for. The bank has initiated recovery actions to recover dues from the borrower in August 2016.”