Arrests of bank officers over bad loans surge: 10 to 50 in four months

A majority of these cases is being probed by the CBI and over half the officers facing action are of the rank of general manager and above. Until the end of March, just 10 officers were officially recorded as being under CBI investigation in five cases of bank fraud.

THE NUMBER of bank officers who have either been booked by law enforcement agencies or are facing charges over their involvement in extending loans that have subsequently turned bad has surged over the last four months to over 50.

A majority of these cases is being probed by the CBI and over half the officers facing action are of the rank of general manager and above. Until the end of March, just 10 officers were officially recorded as being under CBI investigation in five cases of bank fraud.

Industry players have attributed the five-fold rise in the number of arrests to the renewed urgency in enforcement action following the alleged fraud that erupted in end-February at Punjab National Bank (PNB) involving diamantaire Nirav Modi.

Of the officers in the dock, there are nine serving or former CMDs who have been either booked or have formal charges filed against them while some former top RBI officials too are learnt to be under the scanner.

All of this has predictably ruffled feathers in the beleaguered banking sector, with bankers predicting that the mild revival in credit growth visible since late last year could get impacted as officers have started slamming the brakes on fresh lending in light of the panic over the arrests.

Assurances from sections of the government notwithstanding, the nervousness among bankers is stoked further by the fact that enforcement action is only projected to surge in the coming months, given that there are currently a total of 292 cases across 44 public and private sector banks involving allegations of “cheating” and “fraud” are under various stages of investigation by the CBI alone.

This comes at a time when the squeeze on real credit to industry is gradually abating, with real non-food credit growth seeing a mild recovery since November 2017. Despite this trend, real credit growth to industry continues to be in negative territory since April 2016. The latest RBI numbers for April 2018 shows that the over 40 per cent year-on-year increase of flow of resources to the corporate sector during April-December 2017 was almost entirely on account of factors such as bond market borrowing and lending by NBFCs, substituting in part for weak bank credit.

On July 7, the arrest of two senior retired officers of the Bank of India in connection with alleged loan fraud of Rs 2,654 crore by Vadodara-based Diamond Power Infrastructure Ltd (DPIL) came as the latest in a series of bankers facing arrests.

Of the 292 cases currently under CBI investigation, according to data updated till March 2018, 10 cases involved bank fraud amounts of Rs 1,000 crore or more while two cases involving bank fraud amount of over Rs 1,000 crore pertaining to IDBI Bank and Canara Bank are under further investigation after filing of chargesheets.

So far, up to March 2018, 10 bank officers were recorded as being under CBI investigation in five cases of bank fraud while in seven cases, no bank officers had been named as accused in the FIR till then, according to official numbers.

On June 21, the Economic Offences Wing (EOW) of the Pune Police arrested Bank of Maharashtra CEO Ravindra Marathe, former managing director Sushil Muhnot, executive director Rajendra Gupta and two other bank officials for allegedly colluding with real estate developer DS Kulkarni to divert funds and booked them under various sections of the Indian Penal Code and the Prevention of Corruption Act.

Apart from the CBI, the Directorate of Enforcement too has conducted 234 searches in cases relating to “scams and embezzlement of funds” in banks during the 2017-18 and seized assets worth about Rs 7,109 crore. With this, during the last three financial years, the ED has registered 605 cases under the provisions of Prevention of Money Laundering Act (PMLA), 2002, including disproportionate assets cases and attached or seized assets totalling about Rs 27,982 crore.

The first set of big-ticket arrests happened in January last year, when former IDBI Bank chairman Yogesh Agarwal and four other executives were arrested in a case linked to the loan default by Kingfisher group promoter Vijay Mallya. Former Canara Bank chairman RK Dubey, former United Bank of India chairman Archana Bhargava, former Punjab National Bank CEO Usha Ananthasubramanian and former IDBI executives Kishor Kharat, Melwyn Rego and MS Raghavan are also facing charges.

The recent spate of arrests has drawn criticism from the Indian Banks’ Association, which condemned the action in cases such as the Bank of Maharashtra arrests and said the bankers in some of these cases were not directly involved in sanctioning or repayment of deposits by firms.

A senior Finance Ministry official, when asked about the increase in arrests, said the issue had “no relation with the PNB case” and that investigation agencies were “merely following the due process”as cases came to light.

On July 3, Union minister Arun Jaitley came down heavily on the arrest of the entire top management of the Bank of Maharashtra by the state police saying nobody should “overlook the federal structure of the nation”. Jaitley also called for amending the Prevention of Corruption Act, which he described as “anarchic as well as one of the most badly drafted pieces of legislations” that has been bringing governments to a standstill.

Surge in arrests

Feb 21: CBI arrests GM-rank branch head (Aug 2009-May 2011) at PNB Brady House branch, Mumbai.

Feb 28: CBI arrests Chief Manager-rank auditor responsible for auditing systems and practices at PNB Brady House.

March 1: CBI books a former CMD of United Bank of India for allegedly acquiring assets worth Rs 3.64 crore disproportionate to known sources.

March 2: CBI arrests retired Internal Chief Auditor responsible for concurrent audit for the period 2011-2015 at PNB Brady House branch.

April 15: CBI registers case against UCO Bank former chairman for alleged cheating. A former retired GM and DGM were also arrested for allegedly being involved in a Rs 621-crore scam.

April 27: CBI registers case against MD & CEO of Syndicate Bank and MD & CEO of Indian Bank for default in loans worth Rs 600 crore taken by two companies of former Aircel promoter C Sivasankaran. CBI named 15 IDBI bank officials, a former IDBI Bank CMD and two independent directors in FIR.

June 21: Pune Police arrest Bank of Maharashtra CEO, former MD, executive director and two other bank officials for allegedly colluding with real estate developer to divert funds.

June 28: CBI files chargesheets against 15 “public servants”, including two former CMDs and a former executive director of Canara Bank in an alleged loan default of Rs 146 crore by Jatin Mehta of Winsome Diamonds.

July 7: CBI arrests retired general manager and deputy general manager of Bank of India for “undue favours” to a Gujarat-based company in grant of loans of Rs 2,654 crore.

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