New Delhi/Mumbai: Investors may have been shocked when one of India’s biggest banks disclosed a $1.77 billion fraud by billionaire jeweller Nirav Modi, but the RBI has recorded data that shows the problem runs far deeper and wider.
Reserve Bank of India data, which a Reuters reporter obtained through a right-to-information req-uest, shows state-run banks have reported 8,670 “loan fraud” cases totalling 612.6 billion rupees ($9.58 billion) over the last five financial years up to March 31, 2017.
In India, loan frauds typically refer to cases where the borrower intentionally tries to deceive the lending bank and does not repay the loan.
The figures expose the magnitude of the problem in a banking sector alrea-dy under pressure after years of poor lending pra-ctices. Bad loans surged to a record peak of nearly $149 billion last year.
Bank loan frauds have steadily increased as well, reaching Rs 17,634 crore in the latest financial year from Rs 6,357 crore in 2012-13, according to the data, which doesn’t include the PNB case.
Punjab National Bank said on Wednesday two junior officers at a single branch had illegally steered $1.77 billion in fraudulent loans to companies, most of them controlled by billionaire jeweller Nirav Modi. It was India’s biggest fraud ever.
“This might be the tip of the iceberg or the middle, and that is the worry,” said Pratibha Jain, partner at law firm Nishith Desai Associates, who advises on bankruptcy cases. “The fact is we don’t know what else is out there.”
The RBI did not immediately respond to a request for comment. But in June 2017 RBI, in its Financial Stability Report, called frauds in banks and financial institutions “one of the emerging risks to the financial sector”.
“In a number of large value frauds, serious gaps in credit underwriting standards were evident,” the RBI said, adding that some of the gaps include lack of continuous monitoring of cash flows and cash profits, diversion of funds, double financing and general credit governance issues in banks.
The RBI has been commended for forcing Indian banks to fully disclose its bad loans, speed up their recovery, and stop hiding fraud cases as non-performing assets.
Yet to some critics, the RBI has, at the same time, been too guarded about publicly sharing data on loan defaults or fraudulent loans. This is partly due to legal constraints on disclosing individual ca-ses and worries investors would pummel the affected banks, making loan recovery even harder.
In fact, the numbers of loan fraud cases across India could be even higher since they only include cases reported to the RBI, which involve only loans of Rs 1 lakh or more. In its right-to-information request, Reuters sought data from 20 of India’s 21 state-run banks and obtai-ned 15 replies.
