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<ul><li>The Ministry of Home Affairs has empowered the <keyword id="107956" type="ORGANIZATION" weightage="20" keywordseo="Serious-Fraud-Investigation-Office">Serious Fraud Investigation Office</keyword> (SFIO) to request the issuance of look-out-circulars (<keyword id="6355098" type="UNKNOWN" weightage="20" keywordseo="LoC">LOC</keyword>) against people who are suspected of defaulting on large loans. </li><li>Last week, the same power was also granted to the CEOs of India’s public-sector banks, which have largely been the major casualties of these frauds and loan defaults. </li><li>Prior to these changes, the ability to request for LOCs was mainly extended to police authorities, the CBI, Enforcement Directorate, the home and external affairs ministries as well as regional passport offices and customs and tax officials. </li></ul>In the wake of a series of high profile banking scams and loan defaults this year, the most notable of which is <a href="https://www.businessinsider.in/here-are-the-main-findings-from-punjab-national-banks-internal-investigation-into-the-2-billion-nirav-modi-scam/articleshow/64681851.cms">the Nirav Modi case</a>, the Indian government is trying to make it easier to prevent fraudsters from escaping the country and taking up residence elsewhere. To this effect, the Ministry of Home Affairs has empowered the Serious Fraud Investigation Office (SFIO), which is housed under the corporate affairs ministry, to request the issuance of <a href="https://indianexpress.com/article/india/centre-gives-sfio-powers-to-stop-defaulters-from-fleeing-the-country-5468015/">look-out-circulars </a>(LOC) against people who are suspected of defaulting on large loans. Last week, the same power was also granted to the<a href="https://www.livemint.com/Politics/lAjlD5SnzGYkS87SyKxVJI/Govt-authorises-public-sector-bank-CEOs-to-request-for-look.html"> CEOs of India’s public-sector banks</a>, which have largely been the major casualties of these frauds and loan defaults. However, as these public-sector banks aren’t official investigation agencies, the LOCs requested by them can be challenged in court. That is not the case with the SFIO. Prior to these changes, the ability to request for LOCs was mainly extended to police authorities, the CBI, Enforcement Directorate, the home and external affairs ministries as well as regional passport offices and customs and tax officials. A major reason why wilful defaulters like <keyword id="14678" type="PERSON" weightage="20" keywordseo="Vijay-Mallya">Vijay Mallya</keyword>, <keyword id="571991" type="COMPANY" weightage="20" keywordseo="Nirav-Modi">Nirav Modi</keyword> and Mehul Choksi were able to flee India for safer havens was because the agencies or entities that caught wind of their crimes did not have the authority to prevent them from fleeing and had to follow protocols and notify higher powers with said authority. By the time formal channels of communication were activated, it was too late. This is reportedly what happened in the case of Vijay Mallya, who fled India in March 2016. The CBI actually <a href="https://www.hindustantimes.com/india/cbi-ignored-immigration-alert-on-mallya-leaving-india-on-march-2/story-hW83mkAc6qVe14VyFVOIFJ.html">watered-down the LOC</a> it had filed against the liquor baron in October 2015 from “detain” to “inform” after citing a lack of evidence and Mallya’s supposed intention to cooperate, which eventually allowed him to leave the country. The CBI had actually taken over the case from the SFIO, which had been looking into the diversion of funds at Mallya’s companies in September 2015. By broadening the number of stakeholders that can ask for the arrest of a <keyword id="2168141" type="PERSON" weightage="20" keywordseo="Wilful-defaulter">wilful defaulter</keyword>, the move could decrease the chances of this happening again in the future, especially in instances where investigations by the police and CBI are hamstrung by “conflicts of interest” or they don’t follow through with arrests. A few months ago, the central government also passed the <a href="https://www.businessinsider.in/india-takes-its-first-big-step-towards-avoiding-future-nirav-modi-vijay-mallya-like-scams/articleshow/65069668.cms">Fugitive Economic Offenders Act</a>. The law allows the Enforcement Directorate to seize the domestic as well as foreign assets of “economic offenders” who have left the country so their creditors may recover their dues. The crimes involve amounts of ₹1 billion or more. SEE ALSO: <a href="https://www.businessinsider.in/india-takes-its-first-big-step-towards-avoiding-future-nirav-modi-vijay-mallya-like-scams/articleshow/65069668.cms">India takes its first big step towards avoiding future Nirav Modi, Vijay Mallya-like scams</a> <a href="https://www.businessinsider.in/here-are-the-main-findings-from-punjab-national-banks-internal-investigation-into-the-2-billion-nirav-modi-scam/articleshow/64681851.cms">Here are the main findings from Punjab National Bank’s internal investigation into the $2 billion Nirav Modi scam</a> <a href="https://www.businessinsider.in/liquor-baron-vijay-mallya-will-be-the-first-to-be-tried-under-indias-new-fugitive-economic-offenders-ordinance/articleshow/64635569.cms">Liquor baron Vijay Mallya will be the first to be tried under India’s new Fugitive Economic Offenders Ordinance</a>

India’s corporate fraud investigation agency and the CEOs of state-owned banks can now directly prevent scamsters from leaving the country

<ul><li>Total exposure of Indian banks in the alleged fraud is approximately Rs 20,000 crore</li><li><keyword id="6355975" type="COMPANY" weightage="20" keywordseo="axis-bank">Axis Bank</keyword> has an exposure of Rs 20-30 billion, <keyword id="6358005" type="COMPANY" weightage="20" keywordseo="allahabad-bank">Allahabad Bank</keyword> has Rs 40 billion and SBI, Rs 13 billion. </li><li>As a result of the scam, the Reserve Bank of India (RBI) decided to ban LoU-based transactions on March 13.</li></ul> <keyword id="62034" type="CITY" weightage="20" keywordseo="Punjab-National-Bank">Punjab National Bank</keyword> (PNB) has five days to honour its guarantees to the <keyword id="63524" type="CITY" weightage="20" keywordseo="Union-Bank-of-India">Union Bank of India</keyword> to the tune of Rs 10 billion. If it fails to do so, Union Bank, in an unprecedented move, will have no option but to consider PNB a defaulter in its books and may even have to classify the unpaid amount as a non-performing asset (NPA) based on the recommendations of its auditors. Both banks are state-owned and if this default happens, it could shake the foundation of the banking sector leading to both the people and international banking institutions losing faith in the banking system. The only way this can be avoided is if the government or the RBI swoop in and bail PNB out. All this stems from the <keyword id="571991" type="ORGANIZATION" weightage="20" keywordseo="Nirav-Modi">Nirav Modi</keyword> case which involves fraudulent letters of undertaking (<keyword id="368886" type="PERSON" weightage="20" keywordseo="Lou">LoU</keyword>). And though this matter is being investigated by government agencies, Union Bank contests that there is no fraud in its books. Rajkiran Rai, MD of Union Bank told the <a href="https://economictimes.indiatimes.com/industry/banking/finance/banking/pnb-may-become-1st-bank-to-be-labelled-as-defaulter/articleshow/63459075.cms">Economic Times</a>, “For us, it is a genuine claim on PNB backed by documents. It is not a fraud in our books... We will take the auditor’s view. However, we don’t want to list PNB as a defaulter. We are expecting some intervention from either the government or RBI so that there is a resolution by March 31.” LoUs are essentially a tool used between Indian banks as guarantees under which customers of one bank can raise money from the other Indian bank's foreign branch in the form of a short-term credit arrangement, typically 90 days long. In the case of Nirav Modi and Mehul Choksi scam, the total exposure of Indian banks in the alleged fraud is approximately Rs. 20, 000 crore--almost twice the initial estimate. According to <a href="http://www.business-standard.com/article/finance/in-5-days-pnb-may-be-first-bank-to-get-defaulter-tag-due-to-nirav-modi-118032600248_1.html" data-type="tilCustomLink">Business Standard</a>, apart for Union Bank of India, <a class="storyTags" href="http://www.business-standard.com/search?type=news&amp;q=axis+bank" target="_blank">Axis Bank </a>has an exposure of Rs 20-30 billion, <a class="storyTags" href="http://www.business-standard.com/search?type=news&amp;q=allahabad+bank" target="_blank">Allahabad Bank </a>has Rs 40 billion and SBI, Rs 13 billion. As a result of the scam, the Reserve Bank of India (RBI) decided to ban LoU-based transactions on March 13. However, this move has raised concerns with a bunch of bankers. Asked if the RBI decision is an overreach action by the <a href="https://economictimes.indiatimes.com/news/economy/policy/policymakers-need-to-be-careful-sanyal-on-lou-ban/articleshow/63302747.cms">Economic Times</a>, the Finance Ministry's Principal Economic Advisor Sanjeev Sanyal said, "I am not in a position to comment on RBI decision they have just introduced… But, the general point remains that you have to take a nuanced view of these things in particular because you are not dealing with a silo system. You are dealing with an inter-connected ecosystem and if you block off oxygen in one part it rapidly spreads to rest of the system.”

PNB might become first bank to get 'defaulter' tag in 5 days

<ul><li>Number of bad loans alone was close to $149 billion last year.</li><li> <keyword id="571991" type="ORGANIZATION" weightage="20" keywordseo="Nirav-Modi">Nirav Modi</keyword> and his uncle Mehul Choksi allegedly defrauded Punjab National Bank of over <a href="http://www.thehindu.com/business/Industry/all-you-need-to-know-about-nirav-modi-and-the-177-billion-pnb-fraud/article22753973.ece" data-type="tilCustomLink">₹1.77 billion</a>. </li><li>According to proxy advisory firm Institutional Investor Advisory Services (IiAS), in 2016-17 alone the Indian banking sector reported 12,553 frauds aggregating to Rs 181.7 billion. </li></ul> India’s already troubled banking sector is being demolished by the surging number of bad loans and/or bank frauds that are coming to light. Though this is not at all a new phenomenon, the Nirav Modi case has opened up a Pandora’s box full of dodgy transactions -- that typically involves cases where the borrower intentionally tries to deceive the lending bank and does not repay the loan -- that run in millions and even billions. As a result of which, the CBI is on an overdrive to nab these offenders. According to data from the Reserve Bank of India (RBI), accessed through a right-to-information request by a <a href="https://in.reuters.com/article/india-banks-fraud/exclusive-unpublished-data-shows-indias-fraud-problems-extend-far-beyond-pnb-idINKCN1G00SJ">Reuters</a> reporter, in the five financial years leading up to 31 March 2017 showed that state-run banks reported 8,670 “loan fraud” cases totalling ₹612.6 billion. And the number of bad loans alone was close to a whopping <a href="https://www.ndtv.com/india-news/unpublished-data-shows-indias-fraud-problems-extend-far-beyond-pnb-1813569" data-type="tilCustomLink">$149 billion</a> last year. According to proxy advisory firm Institutional Investor Advisory Services (IiAS), in 2016-17 alone the <a href="https://www.firstpost.com/business/frauds-cost-rs-18170-cr-in-12553-cases-to-banking-sector-in-fy17-advisory-firm-report-4411267.html">Indian banking sector reported 12,553 frauds aggregating to Rs 181.7 billion</a>. Here’s are of the biggest frauds that came to light in the past financial year. Kanishk Gold Pvt Ltd./consortium of 14 banks led by <keyword id="6354731" type="UNKNOWN" weightage="20" keywordseo="state-bank-of-india">State Bank of India</keyword> (SBI): Kanishk Gold Pvt Ltd. has been <a href="https://timesofindia.indiatimes.com/business/india-business/jewellery-chain-kanishk-gold-defrauds-14-banks-to-tune-of-rs-824-15-crore/articleshow/63394221.cms" data-type="tilCustomLink">accused</a> by a consortium of 14 banks led by SBI of defaulting on a loan of ₹8241.5 million. While the principal loan amount is about ₹8241.5 million, adding the interest due would indicate a loss of more than ₹10 billion. In a letter dated 25 January 2018 to the CBI, SBI charged Kanishk with "manipulating records, shutting shop overnight." Nirav Modi / <keyword id="6476298" type="UNKNOWN" weightage="20" keywordseo="Punjab-National-Bank">Punjab National Bank:</keyword> The all-too-famous case in which companies owned by billionaire jeweller Nirav Modi and his uncle Mehul Choksi allegedly defrauded India's second-biggest state-run bank of over <a href="http://www.thehindu.com/business/Industry/all-you-need-to-know-about-nirav-modi-and-the-177-billion-pnb-fraud/article22753973.ece" data-type="tilCustomLink">₹1.77 billion</a>, making it India's biggest detected loan fraud. Apparently, two junior officers at a single branch had illegally issued fraudulent “letters of undertaking” (a guarantee that a bank is obliged to repay the loan if the actual borrower fails) without any collateral to the accused. When the accused failed to pay up, the bank employees involved issued more LoUs on behalf of PNB, asking other banks to give out fresh loans to the firms. The Central Bureau of Investigation (CBI) registered the case on 31 January 2018. Vikram Kothari / consortium of 7 banks led by Bank of India: The CBI arrested <keyword id="5888255" type="COMPANY" weightage="20" keywordseo="Rotomac">Rotomac</keyword> owner Vikram Kothari and his family in the alleged “willful” loan default to the tune of ₹ 36950 million on 22 Feb 2018. As alleged, the case relates to bank loans <a href="https://thewire.in/banking/banking-sector-hit-second-scam-rs-3695-cr-rotomac-promoters-probed" data-type="tilCustomLink">worth ₹ 29190 million</a> from 2008 onwards taken by Mr Kothari’s companies from a consortium led by Bank of India and comprising Bank of Baroda, Indian Overseas Bank, Union Bank of India, Allahabad Bank, Bank of Maharashtra and Oriental Bank of Commerce. This amount inflated to ₹ 36950 million after including accrued interest, because of repeated defaults on payment. Dwarka Das Seth International Pvt Ltd / Oriental Bank of Commerce: On 24 February 2018, the CBI registered a case against Delhi-based diamond exporter, Dwarka Das Seth International Pvt Ltd, for an alleged <keyword id="77600" type="PERSON" weightage="20" keywordseo="bank-fraud">bank fraud</keyword> to the tune of <a href="https://economictimes.indiatimes.com/news/politics-and-nation/cbi-approaches-interpol-to-locate-promoter-of-dwarka-das-seth-jewellers/articleshow/63129931.cms" data-type="tilCustomLink">₹3898.5 million</a>. The company was supposedly using letters of credit (LoCs) to pay off other creditors against the purchase of gold and other precious stone and transfer gold and funds outside the country using fictitious transactions. The company was also engaging in business transactions with non-existent entities, it said. Totem Infrastructure Ltd / consortium of eight banks led by Union Bank of India: CBI arrested the promoters of Totem Infrastructure Ltd — Tottempudi Salalith and Tottempudi Kavita — on 23 March 2018 in connection with an alleged <a href="https://timesofindia.indiatimes.com/business/india-business/cbi-arrests-promoters-of-totem-infra-in-rs-1394-crore-fraud-case/articleshow/63433753.cms" data-type="tilCustomLink">₹13940 million</a> fraud perpetrated against a consortium of eight banks. They were also accused of using the funds that were loaned to them for purposes other than what they were meant for. Aircel promoter C Sivasankaran and more / IDBI Bank: The CBI on Thursday (26 April 2018) registered a case against 15 former and serving senior IDBI Bank officials along with 24 others including former Aircel promoter C Sivasankaran, the heads of two public sector banks — Melwyn Rego of Syndicate Bank and Kishor Kharat of Indian Bank — and former CMD of IDBI Bank M S Raghavanand in an alleged <a href="http://www.thehindu.com/business/Industry/idbi-bank-fraud-case-cbi-books-indian-bank-and-syndicate-bank-chiefs-aircel-founder/article23684141.ece" data-type="tilCustomLink">₹6-billion</a> bank fraud case. The CBI claims loans worth ₹3220 million and ₹5230 million were given to Sivasankaran’s two offshore companies – Axcel Sunshine Limited (British Virgin Islands) and Finland-based Win Wind Oy respectively – which turned non-performing assets.

Here are the biggest bank frauds that happened in India the previous financial year

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India’s corporate fraud investigation agency and the CEOs of state-owned banks can now directly prevent scamsters from leaving the country

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PNB might become first bank to get 'defaulter' tag in 5 days

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Here are the biggest bank frauds that happened in India the previous financial year

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