Investors may have been shocked when one of India’s biggest banks disclosed a $1.77 billion fraud by a billionaire jeweller, but the central bank has recorded data that shows the problem runs far deeper and wider.
Reserve Bank of India (RBI) data, which a Reuters reporter obtained through a right-to-information request, shows state-run banks have reported 8,670 “loan fraud” cases totalling ₹612.6 billion ($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 already under pressure after years of poor lending practices.
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Bad loans surged to a record peak of nearly $149 billion last year. Bank loan frauds have steadily increased as well, reaching ₹176.34 billion in the latest financial year from ₹63.57 billion in 2012-13, according to the data, which doesn’t include the Punjab National Bank (PNB) case. PNB, India’s second-largest state lender, 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.”
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Bank disclosures
The RBI did not immediately respond to a request for comment. But in June 2017 the central bank, in its Financial Stability Report, called frauds in banks and financial institutions “one of the emerging risks to the financial sector”.