Cracking down in the Bhushan Steel case, the Serious Fraud Investigation Office (SFIO) has recommended that the Department of Financial Services (DFS), the Reserve Bank of India (RBI) and the Central Bureau of Investigation (CBI) act against over a dozen banks for their alleged involvement in financial misappropriation carried out by the company’s promoters.
In its report that runs into over 70,000 pages, the investigating agency has charged officials of 13 banks of being hand-in-glove with the Bhushan Steel promoters, and indicated that 200 or more officials could be involved.
The company’s former MD Neeraj Singal was earlier arrested by the agency and is now on interim bail.
Two highly placed officials said SFIO’s probe found wrongdoing at multiple levels, including that of top management, in the handling of a multi-bank loan to Bhushan Steel.
“Basically the banking fraud has happened at two levels. One at the operational level, and another at management level – to cover up the operational fraud in the form screening committee meetings and the Joint Lender Forum submitting its response to RBI seeking closure of the forensic audit, suppressing material facts made out in the report,” the SFIO report said.
The SFIO submitted its 70,000-page report in a special court in Dwarka, Delhi on July 1. The report has been shared with RBI and the Central Vigilance Commission as well, to facilitate action against the banks.
It details fraudulent use of 1600 letters of credit (LoC) that tote up to Rs 45,000 crore, and the overvaluation of assets by Rs 15,000 crore.
“In this case, 13 banks were part of the Joint Lender Forum. The banks whose officials’ role clearly came out in this report are State Bank of India (SBI), Punjab National Bank (PNB), Allahabad Bank, Andhra Bank and Oriental Bank of Commerce,” said one of the officials quoted above. “SFIO has been directed to share the report and make a detailed reference to CBI indicating the names of all bank officials who were prima facie involved.”
The other official quoted above said, on the condition of anonymity, “SFIO has filed prosecution case against the SBI general manager, the current PNB executive director and the managing director of Life Insurance Corporation – who was nominee director in Bhushan Steel and part of the board of the company.”
According to the annual report of Bhushan Steel, SBI and PNB recommended AK Deb and Rajesh Yaduvanshi respectively to serve as their nominee directors on the board of Bhushan Steel, while Vipin Anand was LIC’s nominee to the board.
“SFIO is directed to share the report with the Department of Financial Services (DFS) being the administrative ministry for the banks, for taking disciplinary action against the persons responsible for management fraud by endorsing a copy of the reference to DFS which is made to CBI,” a senior official in the finance ministry told Moneycontrol.
“Department of Financial Services is planning to initiate action against bankers on the basis of the SFIO report, and these officials’ count may go up to 200 at operational and management level,” the official said.
Bhushan Steel was one of the accounts in RBI’s initial list of companies referred to the Insolvency and Bankruptcy Code for resolution. Prior to that, the consortium led by SBI and PNB had failed to revive the company under stressed asset resolution schemes. These included S4A and 5/25 schemes for which the Joint Lenders Forum was formed by the consortium.
The case was admitted by National Company Law Tribunal (NCLT) in July, 2017.
Emails seeking their responses, sent to all the banks named in the report, as well as RBI, remained unanswered at the time of publishing. The story will be updated once they respond.
This is not the first time that bankers have come under the net of an investigation agency. In the cases of fugitive industrialists Vijay Mallya and Nirav Modi, and now Sterling Biotech, the role of bankers has come under intense scrutiny.- Parnika Sokhi contributed to this report.