Indian banking system, which is struggling with issue of mounting bad loans, has been hit by another banking fraud case. This time the Central Bureau of Investigation (CBI) has booked promoters of non-banking finance company – Dewan Housing Finance Limited (DHFL) of defrauding a consortium of 17 banks worth Rs 34,000 crore. DHFL banking fraud is being termed as the country’s biggest scam in banking industry after ABG Shipyard’s fraud case of Rs 20,000 crore which was reported earlier this year.
A total of 17 banks have been defrauded of over Rs 34,000 crore by home loan provider DHFL.
The CBI on Wednesday booked former promoters of DHFL, Kapil Wadhawan and Dheeraj Wadhawan, among 13 others in connection with the case.
The case has been registered on a complaint from the Union Bank of India (UBI). According to the UBI complaint, since 2010, the DHFL has extended credit facilities of over Rs 42,000 crore by the consortium of which Rs 34,615 crore remain outstanding. The loan was declared NPA in 2019 and fraud in 2020.
After the registration of a case on June 20, a team of over 50 officials from the agency on Wednesday carried out searches on a dozen premises in Mumbai belonging to the FIR-listed accused who also include Sudhakar Shetty of Amaryllis Realtors and eight other builders.
What is the DHFL ‘scam’?
The Union Bank of India in its complaint has alleged that DHFL had taken Rs 42,871 crore as loans from a consortium of 17 banks between 2010 and 2018.
It said the company started defaulting in loan payments from 2019.
The bank alleged that the promoters along with others siphoned off and misappropriated a significant portion of the funds by falsifying the books of DHFL and dishonestly defaulted on repayment of the legitimate dues of the 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 Unearthed?
Earlier in 2019, Investigative platform Cobrapost alleged the primary promoters of DHFL and their associate companies had committed a “systemic fraud” to siphon off public money.
Cobrapost alleged that the “scam” was committed by giving out funds in secured and unsecured loans to “dubious” shell or pass-through entities, purportedly related to DHFL’s own primary stakeholders through their proxies and associates. The funds, as alleged, were re-routed to the firms allegedly controlled by them.
Responding to the charges, DHFL issued a statement saying: “This mischievous misadventure by Cobrapost appears to have been done with a mala fide intent to cause damage to the goodwill and reputation of DHFL and resulting in erosion in shareholder value. DHFL today (Tuesday) received an email at 8.44 a.m., with a follow-up reminder one hour later, seeking answers to 64 questions from Cobrapost, many of which were laced with political innuendos.”
Following this, the lender banks in February 2019 appointed KPMG to conduct a “special review audit” of DHFL from April 1, 2015, to December 31, 2018.
What Did The KPMG Audit Reveal?
KPMG found diversion of funds in the guise of loans and advances to related and interconnected entities and individuals of DHFL and its directors.
A forensic audit conducted by the KPMG observed that “large amounts were disbursed as loans & advances by the borrower company to a number of interconnected entities and individuals with commonalities to DHFL Promoter Entities, which were used for the purchase of shares/debentures.”
Where Was The Money Disbursed?
The account books showed that 66 entities having commonalities with DHFL promoters were disbursed Rs 29,100 crore against which Rs 29,849 crore remained outstanding. Another major outstanding in DHFL accounts was Rs 11,909 crore due to loans and advances worth Rs 24,595 crore given 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 led to the creation of an inflated retail loans portfolio of 1,81,664 false and non-existent retail loans aggregating Rs 14,095 crore outstanding, UBI said.
The loans referred to as ‘Bandra Books’ were maintained in a separate database and subsequently merged with other large project loans or OLPL.
The Central Bureau of Investigation unearthed on Wednesday said DHFL had over 1,81,660 ghost retail loan accounts which had a liability of over Rs 14,000 crores.
These were kept in a ‘separate database’ called ‘Bandra Books’.
“The aforesaid retail loans, referred to as ‘Bandra Books’, were maintained in a separate database in Foxpro Software, against which loans were shown as disbursed by DHFL and were subsequently merged with OLPL (Other Large Project Loans),” the bank has alleged.
The OLPL category loans were largely carved out of the non-existing retail loans amounting to Rs 14,000 crore, out of which Rs 11,000 crore was transferred to OLPL loans and Rs 3,018 crore was retained under the retail portfolio as unsecured retail loans.
Which Are The Biggest Bank Loan Scams In India?
Billionaires like Nirav Modi, Mehul Choksi, Vijay Mallya, and Lalit Modi have all defrauded the banks to the tune of thousands of crore.
Until now, ABG Shipyard loan fraud (Rs 20,000 crore) was considered to be the biggest banking fraud case. In the biggest banking fraud till February this year, the ABG Shipyard Limited, a Gujarat-based shipbuilding firm, defrauded a consortium of 28 banks including the State Bank of India (SBI), IDBI Bank, and ICICI Bank for Rs 22,800 crores.
Before ABG Shipyard, diamond trader Nirav Modi and his uncle Mehul Choksi were involved in the fraud for over Rs 14,000 crore, whereas the fraud by liquor baron Vijay Mallya accounted for for Rs 9,900 crore.