Explained: How 100 frauds hit banks -Rahul Tripathi

-The Indian Express

CVC report analyses 100 major frauds on public sector banks, committed by borrowers from 13 sectors. Among them, an aviation firm that got loans based on its brand name in spite of a poor credit rating; and jewellers who allegedly inflated value of diamonds and submitted fake details on debtors.

New Delhi:
The Central Vigilance Commission (CVC) recently came out with a report that analyses the top 100 bank frauds in 13 sectors. Bank frauds have been in public focus of late because of the cases involving Vijay Mallya, Nirav Modi, and other leading businessmen who have gone fugitive. The CVC report, however, does not name any individual or company involved in the cases it has analysed. The analysis deals only with frauds on public sector banks. The report has been given to the RBI, which has acknowledged it as useful and circulated it among public sector banks. A look at the CVC’s findings on frauds involving some of the 13 sectors covered, which include gems & jewellery, aviation, and media:

Gems & jewellery


The CVC analyses three cases of fraud in this sector, committed after taking bank loans. About the nature of the fraud, it says: “The companies deliberately inflated the valuation of diamonds with the mala fide intention to avail higher credit facilities from the lenders and also to indicate the security coverage available with the lenders. Export bills which remained unpaid on due date were purchased by the consortium Banks. The details of debtors submitted by the companies to the bank in order to avail credit facilities appeared to be manipulated, false and fabricated. They also resorted to availing post-shipment finance by discounting ‘Export Bills’ from one of the member banks, while pre-shipment finance was obtained from another member bank by way of Standby Letter of Credit (SBLC), leading to double financing.”

About lapses on the part of the bank, it says, “Due diligence report on borrowers were not obtained before submitting the renewal proposal. No credit assessment was done for these customers. There was no evidence for proof of delivery of the goods to customers… In the absence of any effective mechanism to monitor the movement of discounted Export bill proceeds towards liquidation of SBLCs across member banks, the companies manipulatively diverted and round tripped the funds to their shell companies.”

The report says that the lead bank in the lending consortium did not share the areas of concern, and did not take note of warning signals mentioned in business rating reports.

Please click here to read more.

The Indian Express, 7 November, 2018, https://indianexpress.com/article/explained/central-vigilance-commission-top-100-public-sector-bank-frauds-rbi-5436516/

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