Bank Fraud Investigation in India Extends to Leading Private Banks

The investigation into bank fraud in India has now been extended to a number of banks including the country's leading private banks such as ICICI Bank and Axis Bank.

The top officials of the two banks, including Chanda Kochhar, the Managing Director of ICICI Bank, and Shikha Sharma, the Chief Executive Officer (CEO) of Axis Bank were summoned by the Serious Fraud Investigation Office (SFIO) on Tuesday. They were asked to either appear in person or send their representatives.

The summons by the SFIO is in connection with the probe into the exposure of banks to the firms promoted by Nirav Modi and Mehul Choksi who are allegedly at the centre of the Rs. 12,600 crore Punjab National Bank (PNB) scam.

Axis Bank Deputy Managing Director V Srinivasan and other officials from the trade and transactions department of the bank reported at the SFIO's office in Mumbai on Tuesday. An executive director of the ICICI Bank also reportedly went to the SFIO office where he answered questions on the bank's exposure to Choksi's firm Gitanjali Gems. Sunil Mehta, the MD and CEO of PNB, also appeared before the SFIO on Wednesday after being summoned for recording his statement.

ICICI Bank and Axis Bank are reportedly among a number of banks other than PNB which have provided loans to the companies of Modi and Choksi.

ICICI Bank is the lead banker in the consortium of 31 banks which had extended working capital facility to Choksi's companies. The consortium reportedly has an exposure of Rs. 6,800 crore to Gitanjali Gems owned by Mehul Choksi, and an exposure of Rs. 2,000 crore to the Nirav Modi group companies.

The consortium comprises 30 public sector banks and nine private and multi-national banks. While ICICI Bank is the leader of the consortium, Axis Bank had the largest exposure to PNB through the fraudulent LoUs, The Times of India reported. ICICI Bank confirmed that it is a working capital lender to Mehul Choksi.

The SFIO is an organisation under the Ministry of Corporate Affairs for detecting and prosecuting white-collar crimes and frauds.

The agency has also summoned senior executives of banks other than ICICI Bank and Axis Bank which are part of the 31-bank consortium.

As has been widely reported, officials at the Brady House branch of PNB in Mumbai allegedly issued Rs. 12,600 crore worth of Letters of Undertaking (LoUs) and foreign letters of credit in favour of the companies of Modi and Choksi, to the Hong Kong branches of Allahabad Bank and Axis Bank in an irregular manner. As per these LoUs, PNB assured the overseas branches of Indian banks such as the Allahabad Bank, Axis Bank and Union Bank of India that it would stand guarantee to the loans given by the latter banks to the firms of Modi and Choksi.

Meanwhile the Central Bureau of Investigation detained Vipul Chitalia, Vice-President of the Gitanjali Group of Companies, on Tuesday as part of the investigation.

Axis Bank in the past has been caught lying multiple times about the amount of bad loans (non-performing assets or NPAs) in its books. Audits by the Reserve Bank of India had found that Axis Bank had under-reported its gross NPAs. The bank's NPAs grew to Rs. 27,402 crore in the July-September quarter of 2017-18, a massive increase compared to Rs. 4,451 crore two years ago.

ICICI Bank also under-reported its NPAs by 19.5%, and had gross NPAs worth Rs. 44,488.54 crore at the end of September 2017. This was 36.7 per cent higher than the Rs. 32,547.50 crore of gross bad loans that the bank held a year ago. In 2008, the ICICI Bank had been the victim of a bank run for a short period, following rumours that its balance sheet had been badly damaged due to exposure to toxic assets resulting from the sub-prime loan crisis.

With the widening of the probe, observers are expecting that even more instances of fraud by Indian corporates would come to light in the coming days.