India’s banking system, grappling with the problem of rising bad debts, has been hit by another case of bank fraud. This time, the Central Bureau of Investigation (CBI) has accused the promoters of the non-banking finance company – Dewan Housing Finance Limited (DHFL) of defrauding a consortium of 17 banks worth Rs 34,000 crore. The DHL bank fraud is branded as the country’s biggest banking scam after the ABG Shipyard fraud case of Rs 20,000 crore which was reported earlier this year.
A total of 17 banks have been defrauded of more than Rs 34,000 crore by home loan provider DHFL.
The CBI on Wednesday indicted former DHFL promoters Kapil Wadhawan and Dheeraj Wadhawan, among 13 other people in connection with the case.
The case was registered on the complaint of the Union Bank of India (UBI). According to the UBI complaint, since 2010, the DHCP has granted credit facilities of over Rs 42,000 crore by the consortium of which Rs 34,615 crore remain unpaid. The loan was declared NPA in 2019 and fraud in 2020.
After a case was registered on June 20, a team of more than 50 agency officials on Wednesday carried out searches of a dozen premises in Mumbai belonging to the FIR-listed defendants, who also include Sudhakar Shetty of ‘Amaryllis Realtors and eight other builders.
What is the DHL “scam”?
The Union Bank of India, in its complaint, alleged that DHCP took out Rs 42,871 crore in loans from a consortium of 17 banks between 2010 and 2018.
He said the company started defaulting on its loans from 2019.
The bank alleged that the promoters along with others siphoned off and embezzled a significant portion of the funds by falsifying the books of DHFL and dishonestly defaulted on the reimbursement of the legitimate dues of said consortium banks.
This caused a loss of Rs 34,615 crore to the 17 banks in the consortium.
When and how was the scam discovered?
Earlier in 2019, investigative platform Cobrapost alleged that the main promoters of DHFL and their associated companies had committed “systemic fraud” to siphon off public money.
Cobrapost alleged that the ‘scam’ was committed by providing funds in the form of secured and unsecured loans to ‘shady’ entities or intermediaries, allegedly linked to key stakeholders of DHFL through their agents and associates. . The funds, as alleged, were redirected to the companies they allegedly controlled.
Responding to the charges, DHFL issued a statement saying: “This mischievous misadventure by Cobrapost appears to have been committed with bad faith intent to damage the goodwill and reputation of DHFL and result in an erosion of shareholder value. DHFL received an email at 8.44am today (Tuesday), with a follow-up call back an hour later, asking for answers to 64 questions from Cobrapost, many of which were laced with political innuendo.
Following this, the lending banks in February 2019 appointed KPMG to conduct a “special review audit” of DHFL from April 1, 2015 to December 31, 2018.
What does the KPMG audit reveal?
KPMG has found misappropriation of funds in the form of loans and advances to related and interconnected entities and individuals of DHFL and its directors.
A forensic audit conducted by KPMG observed that “significant amounts were disbursed in the form of loans and advances by the borrowing company to a number of interconnected entities and individuals having commonalities with the entities DHFL promoters, which were used for the purchase of shares/debentures”.
Where was the money paid?
Account books showed that 66 entities having commonalities with the DHFL promoters received Rs 29,100 crore against which Rs 29,849 crore remained unpaid. Another large outstanding amount in the DHFL accounts was Rs 11,909 crore owing to loans and advances worth Rs 24,595 crore granted to 65 entities. DHFL and its promoters also disbursed Rs 14,000 crore as project finance but showed the same as retail loans in their books.
What are “Bandra Books”?
The arbitrary loan advancement has led to the creation of a bloated retail loan portfolio of 1,81,664 fake and non-existent retail loans totaling Rs 14,095 crore outstanding, UBI said.
Loans called “Bandra Books” were kept in a separate database and later merged with other loans from Major Projects or OLPL.
The Central Bureau of Investigation discovered on Wednesday that DHLL had over 1,81,660 phantom retail loan accounts which had liabilities of over Rs 14,000 crore.
These were kept in a ‘separate database’ called ‘Bandra Books’.
“The aforementioned retail loans, referred to as ‘Bandra Books’, were kept in a separate database in Foxpro Software, against which the loans were marked as disbursed by DHFL and were later merged into OLPL (Other Large Project Loans),” the bank alleged.
OLPL category loans were largely excluded from non-existent retail loans amounting to Rs 14,000 crore, of which Rs 11,000 crore was transferred to OLPL loans and Rs 3,018 crore was retained in the portfolio of retail as unsecured retail loans.
What are the biggest bank loan scams in India?
Billionaires like Nirav Modi, Mehul Choksi, Vijay Mallya and Lalit Modi have all defrauded banks out of thousands of crores.
The ABG Shipyard loan fraud (Rs 20,000 crore) was considered the biggest case of bank fraud so far. In the largest bank fraud till February this year, ABG Shipyard Limited, a Gujarat-based shipbuilding company, defrauded a consortium of 28 banks including State Bank of India (SBI), IDBI Bank and ICICI Bank for Rs 22,800 crores.
Prior to ABG Shipyard, diamond trader Nirav Modi and his uncle Mehul Choksi were involved in the fraud for over Rs 14,000 crore, while alcohol baron Vijay Mallya’s fraud was worth Rs 9,900 crore.