Bhushan Power & Steel fraud: After PNB, more lenders may report misappropriation of funds


Two days after the Punjab National Bank (PNB) announced the detection of the Rs 3,805 crore fraud by Bhushan Power & Steel Ltd (BPSL), the buzz is that the scope of the fraud may be much wider, involving more lenders. After all, as many as 33 lenders have exposure to this beleaguered company that is undergoing the insolvency resolution process.

The country’s second largest public sector bank has alleged that BPSL misappropriated bank funds and manipulated its books of accounts to raise funds from its consortium of lenders. Around 85 per cent of PNB’s Rs 4,399 crore exposure to the company had been siphoned off. “On the basis of forensic audit investigation findings [initiated by SBI] and CBI filing FIR, on suo moto basis, against the company and its directors, alleging diversion of funds from [the] banking system, a fraud of Rs 3,805.15 crore is being reported by the bank to RBI,” PNB said in a regulatory filing on Saturday.

The fraud includes domestic exposure of Rs 3,191.51 crore at the PNB’s Chandigarh branch, overseas exposure of Rs 345.74 crore at its Dubai branch and Rs 267.9-crore exposure at its Hong Kong branch. Reacting to the news, PNB’s share price plunged around 11 per cent to an intraday low of Rs 73.15 on Monday and is currently trading at around Rs 73 apiece.

More lenders to BPSL may report that the company misappropriated funds given to it in the days ahead, a top bank official told Mint. To be sure, no lender apart from PNB has reported a fraud related to the company thus far. But the CBI complaint registered on April 5 against BPSL names several other banks.

According to the probe agency, BPSL diverted around Rs 2,348 crore through its directors and staff from the loan accounts of PNB (IFB New Delhi & IFB Chandigarh), Oriental Bank of Commerce (Kolkata), IDBI Bank (Kolkata) and UCO Bank (IFB Kolkata) into the accounts of more than 200 shell companies without any obvious purpose. The CBI said that the company in doing so had misused the funds and the FIR named chairman Sanjay Singhal, vice-chairman Aarti Singhal, along with other directors as suspects.

“It was further alleged that the said Company availed various Loan facilities from 33 banks/financial institutions during the year 2007 to 2014 to the tune of Rs 47,204 crore (approx.) and defaulted on repayments. Subsequently, lead bank PNB declared the account as NPA followed by other banks and financial institutions,” the CBI had stated.

As per the FIR, the accused used the bank funds for purposes other than sanctioned by the bank by committing forgery for the purpose of cheating, used forged documents and falsified the accounts causing huge loss to the lending banks, financial institutions and the exchequer.

Significantly, sources in the know told the daily that JSW Steel – the highest bidder for the bankrupt company having offered Rs 19,700 crore to acquire it – might decide to alter its bid in the future, if more information is revealed about the nature of the fraud. “At this moment, the company has not made a decision about this. But if there are chances of additional liabilities being imposed on the bidder in future, then JSW might choose not to go ahead with the acquisition,” they added.