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Podcast | Pick of the day - Another day, another bank fraud

CBI has registered three separate cases of banking fraud against three Mumbai-based companies for an alleged banking fraud that caused a cumulative loss of over Rs 136 crore to SBI.

July 11, 2018 / 08:20 PM IST

Another day in 2018, and another case of bank fraud. The old phrase used to be “put your money where your mouth is,” but these days we cannot even do that considering our mouths are just jowls hanging low in sheer incredulity going “Whaaaa?!”

Like Jerry Seinfeld would say, what is up with Indian banks these days! All the latest about the latest bank fraud is our Pick of the Day. My name is Rakesh, and you are listening to Moneycontrol.


PTI reported that the Central Bureau of Investigation (CBI) has registered three separate cases of banking fraud against three Mumbai-based companies for an alleged banking fraud that caused a cumulative loss of over Rs 136 crore to State Bank of India, officials said today.


CASE NUMBER ONE: Top Worth Pipes and Tubes Pvt. Ltd

People from the company: Directors Abhay Narendra Lodha, Shishir Shivaji Hiray, Harshraj Shantilal Bagmar
What’s their business? Steel, power, and infrastructure businesses
People from SBI: 3 - Assistant General Manager Thyagaraju Inamanamelluri, Deputy Manager Vilas Narhar Ahirrao, Deputy Manager, Madhura Mangesh Sawant

Paisa involved: 56.8 crore rupees.

CASE NUMBER TWO: Maheep Marketing Pvt Ltd

What’s their business? Wholesale distribution of electrical appliances
People from the company: Directors Gajendra Sandim, Hemant Sanghvi
People from SBI: 3 officials; same as mentioned above.

Paisa involved: 50 crore rupees

CASE NUMBER THREE: Harsh Steel Trade Pvt Ltd

What’s their business? Marketing of semi-finished metal products
People from the company: Directors Chetan Jitendra Mehta and Mahadev Ramchandra Shringare
People from SBI: Assistant General Manager Jagdish Kulkarni and Deputy Manager Sadanand Girkar

Paisa involved: 30.1 crore rupees


CBI spokesperson Abhishek Dayal said, “It was alleged that the said private companies enjoyed bill discounting facilities against the Letters of Credit issued by State Bank of India, D. N. Road branch and PM Road Branch, Fort, Mumbai.

However, these bills were returned unpaid by the concerned banks, since it was observed that there were instances of diversion of funds and misrepresentations by the companies". A letter of credit is a letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time.

He went on to add that the internal enquiry by the bank also revealed irregularities such as raising multiple invoices, false lorry receipts showing incorrect vehicle registration numbers and vehicles other then heavy goods transport vehicles being shown as means of transportation.

Dayal said searches were conducted at 17 places in Mumbai, Raigad, Malegaon, Amravati including office and residential premises of the accused which led to recovery of “incriminating documents.”

CBI officials said the companies, after obtaining credit facility from one branch of the bank, deposited the Letters of Credit at another branch of the SBI supported by fake goods and transportation receipts.

SBI has released a statement that the scam was unearthed when the three companies defaulted on their repayments. SBI conducted an internal inquiry and found many irregularities in the documents submitted by the three companies.

They had raised multiple invoices and fake lorry receipts. In many cases, multiple two wheelers and car registration numbers were presented claiming that they were used for transporting the goods.


2018 has been described as annus horribilis for the Indian banking sector, with Nirav Modi-Mehul Choksi as the marquee performers in this catastrophic display of banking incompetence. Particularly hit have been public sector banks. Scam after scam have dented the reputation of these state run moneylenders.

RBI’s latest Financial Stability Report showed that state-run lenders accounted for a staggering 85 percent of nearly 6,500 fraud cases, amounting to more than Rs 30,000 crore. Top 10 banking frauds in 2018 alone lead to a financial loss of Rs 10,000 crore. Banks had reported nearly 5,000 frauds amounting to Rs 20,000 crore in fiscal year 2017.

“In recent years, frauds reported (For more than Rs 1 lakh) in the Indian banking sector show an increasing trend both in terms of number and quantum. In terms of the relative share of frauds, PSBs have a disproportionate share (more than 85 percent) significantly exceeding their relative business share,” the regulator said in the report released last month.

While the bulk of banking frauds was loan-related, there has also been a significant jump in card and internet banking-related frauds. The quantum and share of PSU bank frauds was much higher than their credit and deposit share which stand at 65 and 75 percent respectively, RBI data showed.

“Fraud amount reported in PSBs is well in excess of their relative share in credit. It could be that somewhat lax internal controls in these bank cohorts have magnified their stressed asset positions relative to non-PCA PSBs,” the regulator noted.

RBI had noted that PSBs lacked effective credit screening and oversights resulting in high volume of loan fraud.

The regulator also emphasised that while the operational risk oversight frameworks of public and private sector banks was not different, the significant differences realised in operational risk called for a deeper introspection of the effectiveness of processes at state-run lenders.

“A significant deterioration in such assets in the PSB segment possibly owes a lot to poor credit screening, deficiency in oversight of the account by the lead bank and information asymmetry between participating banks in consortium arrangements,” the regulator pointed out.

In the Modi-Choksi case, the 162-page internal report produced by PNB officials tasked with probing the fraud, laid bare lapses that go far beyond a few branch officers. The report does not say whether the PNB investigators believe those involved in the monitoring failures were aware of the fraud.

Significantly, they said one of the reasons the fraud went undetected for years was because of lapses within some of the bank's critical areas at its New Delhi headquarters, such as its credit review and international banking units.

"There was enough evidence to suggest failures," the team of four senior PNB investigators said in its report. "It was observed that blatant system violations/unethical practices/dereliction of responsibilities led bank to such a catastrophe."

Glaring lapses within the functioning at Brady House Branch of PNB were completely, perhaps wilfully perhaps not, ignored or it appeared there was no mechanism to address these issues.

  1. Deputy Manager Gokulnath Shetty served at the same branch for seven years - under PNB policy, no officer should remain in the same office for more than three years.

  2. Shetty escaped detection because he did not log his SWIFT transactions on the bank's internal software - something he was supposed to do because the two systems were not integrated. This discrepancy was completely overlooked.

  3. Red flags – even those issued internally – were missed. Brady House branch was one of the best performing branches of PNB. Its import and export transactions in the 12 months to March 2017 stood at $3.3 billion, 50 percent higher than recorded two years prior, largely because of the branch’s dealings with Nirav Modi and associates. "The exceptional growth should have been noticed," the report said.

  4. Unfettered power granted and unchecked: As a mid-level employee, Shetty should only have been able to approve transactions of up to 2.5 million rupees ($37,000) without sign-off from more senior officials. But he had been given unlimited approval powers, the investigators said without explaining how this happened.

  5. Using personal emails may have cost Hillary Clinton the American presidency but that did nothing to Gokulnath Shetty, Deputy Manager at PNB. In the few weeks before his retirement in May last year, Shetty used his personal Yahoo e-mail address to send 22 e-mails -- 18 at around midnight -- to reconcile large forex transactions involving the Modi group. The use of personal e-mail was "overlooked" by the bank's treasury department, the report said.

The point we are making is that there has come to the fore a staggering display of lack of accountability in public sector banks. Unethical practices and systems violations, it appears, have come to be the norm rather than the exception. With no stick, the carrot of easy profiteering has gone unchecked. A lack of regulatory action even in the face of such discrepancies is hard to explain. There have been no penalties imposed on PNB nor has there been a significant shakeup in senior management since the scandal broke.


The SBI stock ended down 1.78 percent on the BSE at 258.90 rupees. The stock has lost over 5 percent in the past one month, while in the past three days, it is up around one percent.

That old song went “Yeh jo public hain yeh sab jaanti hain, public hain/ andar kyaa hain baahar kyaa hain yeh sab kuchh pehchaanti hain/ public hain.” If that song were true today, we the public would know what is happening in public sector banks. But so far, all we have are questions and barely any convincing answers.
Moneycontrol News
first published: Jul 11, 2018 06:18 pm

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