New India bank fraud: EOW probing 2,000 suspect loans, NPAs worth ₹400 cr

EOW has registered a separate preliminary inquiry pertaining to NPAs. The probe could open a Pandora’s box, investigators told HT

MUMBAI: The crisis-hit New India Cooperative Bank had advanced over 2,000 loans to borrowers which were later settled for miniscule amounts, swelling its non-performing assets to around ₹400 crore, investigators from Mumbai police’s Economic Offences Wing (EOW) have found.

Depositors queued up outside branches of the bank after the fraud came to light in February. (Praful Gangurde /HT Photo)

The bank’s former general manager (accounts) Hiten Mehta and former chief executive officer Abhimanyu Bhoan are already behind bars for their role in the alleged embezzlement of ₹122 crore from its cash reserves. Its former chairman Hiren Bhanu, also an accused in the case, has fled the country and a look out circular has been issued against him.

While probing the alleged embezzlement from the bank’s cash reserves, EOW officers found that the three top executives of the bank also colluded to extend loans to borrowers in return for kickbacks. When the loans turned into non-performing assets, they were sold off to asset reconstruction companies (ARCs) at throwaway prices to maintain a clean balance sheet.

The findings have prompted the EOW to register a separate preliminary inquiry pertaining to NPAs. The probe could open a Pandora’s box, investigators from the agency told Hindustan Times.

Background

The New India Cooperative Bank started its journey as the Bombay Labour Cooperative Bank Ltd. It was founded in 1968 by socialist leader and former union minister George Fernandes and noted criminal lawyer and trade unionist Ranjit Bhanu. During the initial years, the bank functioned out of Bhanu’s residence in Fort’s Bazar Gate area.

After the bank was renamed in 1977, it opened around 30 branches across Maharashtra and Gujrat. The branches in Maharashtra are clustered around Mumbai, Thane, Navi Mumbai and Palghar while the branches in Gujarat are located in and around Surat.

The EOW started probing the bank after Reserve Bank of India (RBI) officials found ₹122 crore missing from its cash reserves during a surprise audit on February 12 this year. While ₹112 crore was found missing from the cash vault at the bank’s Prabhadevi branch, around ₹10 crore was missing from the Goregaon branch vault.

Mehta, 57, was the first person to be arrested in the case, after he confessed to his role in removing cash from the bank. The EOW subsequently arrested seven other accused and attached immovable properties worth ₹167 crore.

Cash embezzlement

During interrogation, Mehta claimed that he had seen Hiren Bhanu – son of the bank’s co-founder Rajni Bhanu, its former chairman and former legislator from Colaba – removing cash from the reserves and re-depositing it after some time, police officers privy to the investigation told HT.

“As the person in charge of the bank’s cash reserves, Mehta would remove cash and give it to Hiren Bhanu, then the bank’s chairman. Bhanu would return the cash to Mehta after 2-3 months and the latter would deposit it back without letting anyone else know,” said Nishit Mishra, joint commissioner of police, EOW.

Mehta later tried the trick himself but failed to return the cash to the bank, said EOW officers. “The people whom Mehta gave the cash, including Bhanu, did not keep their word – most of them did not return the money,” said an officer.

Investigators found that Mehta had given Bhanu ₹22 crore from the ₹122 crore he allegedly removed from the cash vault. They also found that Bhanu and his family had fled the country before the fraud surfaced in February.

“Hiren, a British national, fled India for Abu Dhabi on January 26, while his wife Gauri left on February 10, and their sons Kunal and Karan left four days later,” said a police officer.

All four members of the family have been declared as proclaimed offenders and look out circulars have been issued against them. A blue corner notice was also issued against them through Interpol last week, said EOW officers.

Loan turned NPAs

The EOW opened a new leg in the probe into New India Cooperative Bank’s activities after they received a complaint from hotelier Sachidanand Shetty.

In the complaint, Shetty alleged that Bhanu had filled the bank’s board with his cronies and exercised full control over the bank through them. The former chairman had colluded with Bhoan, then the bank’s CEO, to advance loans worth ₹400 crore in lieu of kickbacks, and most of these loans later became NPAs, Shetty stated.

“The bank was started by George Fernandes to finance small entrepreneurs, hawkers and auto unions. But it is in deep trouble now as Hiren Bhanu siphoned off money via hawala channels to England, became a British citizen and started a business there,” the hotelier told HT.

He also raised questions about the RBI awarding AAA plus certificates to the bank during audits from 2021 to 2023 though its NPAs were swelling. “It seems that even RBI officials were pocketed by the Bhanus,” he told HT.

EOW officers said they had received a list of NPAs from the bank, which showed that at least 2,014 loan accounts had turned into NPAs and loans worth ₹300 crore had been sold off to asset reconstruction companies.

A ₹18-crore loan advanced to actress Preity Zinta on January 7, 2011 features among the list of circumspect transactions. The loan was declared an NPA on March 31, 2013, when the outstanding amount was ₹11.47 crore. The actress settled the loan by paying ₹10.74 crore on April 5, 2014, while ₹1.55 crore was waived off.

The EOW is in the process of appointing a forensic auditor to analyse the “highly suspicious” list as the recovery amounts are miniscule, said sources in the investigating agency.

“We don’t want to rush by registering an FIR. We will set the law in motion only after we receive of the auditor’s report,” he said.