The year 2020 appears to be the year of Banking fraud in the country.
The latest in the series of bank frauds that has hit the banking system is the fraud case involving a Delhi – based Amira Pure Foods Pvt Ltd.
The CBI has booked a case of corruption and cheating against the company and its top executives, including the promoter Karan Chanana and the Managing Director Rajesh Arora, for supposedly duping a consortium of 12 banks to the tune of over 1200 crores.
Incidentally, the consortium of banks led by Canara Bank directed the Debts Recovery Tribunal (DRT) against the said accused in 2018.
According to the complaint filed by Canara Bank with the CBI, Amira Pure Foods Pvt Ltd (a 27-year-old company that exports basmati and non – basmati rice) owes –
- Rs. 197 crores to Canara Bank
- Rs 180 crores to Bank of Baroda
- Rs 260 crores to Punjab National Bank
- Rs 147 crores to Bank of India
- Rs 112 crore to State Bank of India
- Rs 99 crore to Yes Bank
- Rs 75 crore to ICICI Bank
- Rs 64 crore to Indian Overseas Bank
- Rs 47 crore to IDBI BANK
- Rs 22 crore to Vijaya Bank
As per reports, the company’s directors were not traceable when the CBI conducted searches on Wednesday. It is feared that the accused may indeed have fled the country.
While CBI is taking all necessary steps to extradite the accused, the National Company Law Tribunal (NCLT) has also issued non – bailable warrants against the company’s directors.
The accused Karan A Channa, his wife Anita Diang, Aparna Puri, Rajesh Arora, and Jawahar Kapoor are not traceable by the CBI.
The fraud came to light when the Banks’ forensic audit of these accounts revealed that the company had made sham transactions with shell companies to the tune of Rs 734 Crore.
The company had inflated purchases and sales through the paper entities owned and operated by those related to the directors to implement these transactions.
The complaint further states that the company had made several sham transactions in foreign currencies between 2015 – 2018.
In the years 2016 and 2017, the banks had classified the accounts of Amira Pure Foods Pvt Ltd as Non – Performing Asset (NPA) over nonpayment of dues; however, the complaint regarding the accused with CBI was only filed this year.
Why Has it taken so long for the consortium of banks to raise the Red flag?
According to the reports, it is clear that the fraudulent activities by Amira Pure Fooda Pvt Ltd had been detected in the year between 2015 – 2018, wherein the company is said to have made several sham transactions in foreign currencies; if such was the case, shouldn’t the said banks have raised a red flag and investigated the transactions by the company and the people who authorized it.
In Banks, both Indian and Multinational, there are set procedures and compliances that have to be conducted and followed, especially those involving large sums of money.
Under the compliance rules and regulations, every transaction that involves large sums of money, higher than usual transactions, and unclear transactions are raised as red flags; to be cleared only after a thorough process is undertaken that involves checking with the person/company/individual, the reason for such transactions and their nature, this is a standard procedure which is adopted by banks for money laundering and also to avoid frauds.
In this particular case, the said banks had already classified the accounts of Amira Pure Foods Pvt Ltd as Non – Performing Asset in the years 2016 and 2017, in fact, several sham transactions involving foreign currencies had been detected between 2015 and year 2018, wherein Canara Bank also moved to moved the Debts Recovery Tribunal (DRT) against the said accused in 2018.
So why has it taken until the year 2020 for a case of fraud to be filed against the said company and its directors?
The report mentions that the accused falsified the account, forged and fabricated the documents to gain illegally at the cost of banks funds – if such is the case, why were the banking officials or the people employed in these banks not able to detect the same, are they not supposed to verify these documents with the originals?
The report red-flagged “glaring irregularities” including cheating, fraud, misappropriation of funds, stock manipulation, diversion of funds, and criminal conspiracy committed by its Directors and promoters and other key persons – if such irregularities were being noticed and red-flagged, shouldn’t the banks have stopped lending and circulated the data internally such that other banks are also notified of the same?
For an average person, any excessive and unclear banking account activity is quickly cross-checked by banking officials. Most often, it is the relationship managers who intern are directed to question these transactions by the Branch Head who is notified by the operations Manager/ Credit Department/ Risk Management/Cashiers and other such departments within the banks.
But it seems that bigger companies and the top management of these companies, i.e., the Key Persons, are spared such scrutiny because – they hold large accounts with the banks with a vast number of transactions and the most important – help meet the targets set for individual Relationship managers from different departments.
One of the reasons why such fraudulent activities are flagged and caught much later than they should be is because – the targets that each Relationship Manager with different departments are given huge monthly targets – Investments, Insurance, savings accounts, current accounts, home loans, personal loans, business loans and so on.
To achieve these huge targets month on month is not only tricky but also elevates enormous amounts of anxiety and humiliation in the weekly meetings held by the respective department heads.
Banks don’t function without people. The profitability of each account ultimately adds to the banks’ balance sheet. However, suppose the banking officials are working in a high-stress environment wherein not only achieving the huge targets but over attaining them is the primary goal of every morning meeting. In that case, it sets the stage for being irresponsible towards compliance.
In almost every case, it has been seen that the relationship managers are constantly pressurized and even humiliated and reprimanded as an underachiever and put on probation (Trial Period) within which these individuals are to pull up their socks or shown the door!
Not having a good record of achieving these highly set targets limits these individuals’ employment opportunities with other banks – hence many fold and resort to fraudulent activities or support the fraudulent activities even if they have a clue that something wrong might be happening.
But at the end of the day, week, and the month, it is the meeting with the Branch heads that is on top of their mind; if the banks accumulate massive amounts of loss at the end of the financial year – who cares?