-Penned by Priyank Tantia

Introduction:

The number of banking frauds in India has increased as the number of digital transactions has increased. According to Reserve Bank of India (RBI) statistics, India had an average of 229 banking frauds each day in fiscal year 2020-21, with less than 1% of the total amount recovered. To further understand, these scams involved Rs.1.38 lakh crore, and only Rs 1,031.31 crore has been recovered so far.

According to the statistics, the incidence of financial frauds increased dramatically after the government demonetised the Rs 500 and Rs 1,000 currency notes in November 2016. This surge was most likely caused by a digital push in a cash-strapped system.

Another bank fraud which has come to limelight is the ABG Shipyard bank fraud case. It is believed to be the largest bank fraud case. ABG Shipyard Ltd is accused of defrauding the State Bank of India (SBI) and 27 other banks and lenders of more than Rs 22,842 crore.

About ABG Shipyard Ltd:

ABG Shipyard Ltd is owned by the ABG Group, a firm engaged in the business of shipbuilding and ship repair. Established in 1985, it is headquartered in Mumbai. Rishi Agarwal is the company’s promoter. He is also the company’s chairman and managing director. The company’s shipyards are in Gujarat, at Dahej and Surat. In the last 16 years, ABG Shipyard has built over 165 vessels.

This is the second time ABG Shipyard is under scrutiny for not paying back loans to banks. A consortium of almost two dozen lenders had financed them in the early 2000s. ICICI Bank was the Consortium’s leader then. On November 30, 2013, the account became non-performing due to low performance. Several attempts were made to resurrect the company’s activities but were unsuccessful. In March 2014, the company’s loan account was restructured under the CDR mechanism.

How the events unfolded:

The loan account of ABG Shipyard was labelled a non-performing asset (NPA) for the first time in July 2016, and SBI filed its first complaint on November 8, 2019. In 2019, the loan account was deemed fraud. On February 7, 2022, the CBI acted on SBI’s complaint after “scrutinizing” the complaint’s FIR for nearly a year and a half.

The directors of ABG Shipyard, Rishi Kamlesh Agarwal, Santhanam Muthaswamy, Ashwani Kumar, and others, including “unnamed public officers,” were charged by the government agency with defrauding a 28-member bank consortium of Rs 22,842 crore. The case has been filed on allegations of misuse of official position, criminal conspiracy, cheating, and criminal breach of trust under the IPC and the Prevention of Corruption Act. The Public officers refer to top officials of a bank, which includes its chairman, directors, auditors, managers and employees as they are deemed to be public servants.

The lawsuit was filed initially by SBI, which is a member of the bank consortium, in November 2019, based on an audit report issued in January 2020. The CBI returned the petition, requesting further information on the bank’s internal inquiry, suspected participation of bank insiders, specific instances of cash syphoning, and details of fraud performed on other banks in the consortium.The CBI said in an official statement that on February 12, it searched 13 addresses in Surat, Bharuch, Mumbai, Pune, and other cities in Gujarat, including the homes of the accused, including private firm directors.

According to the agency, the raids led to the seizure of incriminating papers. The CBI said in an official statement that on February 12, it searched 13 addresses in Surat, Bharuch, Mumbai, Pune, and other cities in Gujarat, including the homes of the accused, including private firm directors. According to the agency, the raids led to the seizure of incriminating papers.

The CBI also pointed out that funds were utilized for reasons other than those for which banks had provided them. Between 2012 and 2017, the accused collaborated and undertook illicit acts such as money laundering, misappropriation, and criminal breach of trust, according to the forensic audit conducted by Ernst & Young. As per the announcement made by State Bank of India, ABG Shipyard’s loan account is undergoing liquidation under an NCLT driven process.

What next?

On one hand we have Banking and financial institutions trying to cope with an increased number of fraud events in the aftermath of COVID-19 and new digital operations and on the other hand, political parties have started playing the blame game.

While the politics around this might drag the issue in other directions, the mismanagement in the banking sector has once again come under scrutiny. The banking and financial institutions have been dealing with an increase in fraud cases, and this trend is projected to continue.

Further, with the incorporation of Bad Banks by the Indian Government, these bad loans could end up being transferred to the National Asset Reconstruction Ltd. But is that the solution to all the bank frauds that are coming up, or some drastic steps to eradicate the mismanagement in the banking sector is needed is something which the government needs to ponder upon.