Pune Police last week arrested top officials of the public-sector Bank of Maharashtra, including its MD and CEO Ravindra Prabhakar Marathe, and his predecessor Sushil Muhnot, for allegedly advancing “illegal” loans to DSK Group, a Pune-based business conglomerate that is being investigated for cheating and fraud. The arrests have sent shock waves through the banking industry that is already under scrutiny in the wake of the Nirav Modi and Chanda Kochhar episodes. At an emergency meeting Friday, the Indian Banks’ Association, the official representative body of the banking industry, called for an “independent committee” to grant clearances to initiate criminal proceedings against senior bankers, and proposed buying insurance for officials who face legal proceedings.
Why have the bankers been arrested?
Marathe, Muhnot and two other officials — executive director Rajendra Kumar Vedprakash Gupta and zonal manager Nityanand Sadashiv Deshpande — were arrested on June 20 for “conspiring” to illegally sanction about Rs 100 crore to DSK Developers Limited (DSKDL), a DSK Group company, for a real-estate project in Pune. Police have alleged the officials sanctioned the loan without the approval of other banks that were part of a consortium, and in violation of RBI guidelines. They have said the officials ignored a clause that linked the disbursal of the loan to the progress of construction at the project site, and failed to check whether DSKDL was utilising the loan for the purposes sanctioned. The four officials have been sent to police custody until June 27.
What is the bankers’ defence?
In a press release issued on the day of the arrests, Bank of Maharashtra said the loan was sanctioned “as per the bank’s lending norms”, that it was “fully secured by primary and secondary securities”, and that the bank had already declared DSKDL and its promoters “wilful defaulters”. A defence lawyer arguing in a Pune court last week said the company had been a “good customer” in the past, had repaid its previous loans on time, and that the arrests were unwarranted because the officials were ready to cooperate with the investigations against DSK Group.
What are the allegations against DSK Group?
DSK is well known in Pune, with interests in real estate, education, entertainment, travel, hospitality, dairy, and power, among others. The chief promoter of the Group is 66-year-old D S Kulkarni. His profile on the Group’s website claims he sold vegetables and did odd jobs in his childhood to pay for an education.
The Group also dabbled in financial schemes, offering attractive fixed deposit returns. In October last year, some investors and depositors went to police saying the company was not paying them their dues. Subsequently, there were complaints that the company had not delivered apartments even after full payments had been made. Police have registered several FIRs against the Group, accusing it of cheating some 45,000 depositors. They have told courts that the alleged fraud was worth over Rs 2,000 crore. The DSK Group denies the allegations.
Among the DSK Group activities under investigation is DSKDL’s Dream City project, an 8,000-crore integrated township spread over 300 acres on the Pune-Solapur Road. It is for this project that the Bank of Maharashtra had disbursed the contentious loan. Police are probing several allegations of unfair land deals and diversion of money for the project, in which Kulkarni and his close family members are said to have benefited.
The project is currently stalled. Kulkarni, his wife Hemanti, several members of their family, and DSK officials have been arrested. Last week, Kulkarni’s son Shirish was asked by the Supreme Court to surrender within a week.
What is the big picture after the arrests?
Arrests of such highranking officials of public-sector banks is rare, if not unprecedented. The banking community is worried that the arrests would erode public confidence in banks. It could also become more difficult to sanction loans. The industry and some experts have questioned the wisdom in arresting the officials when they were ready to cooperate with investigations. They have argued it was wrong to invoke the stringent Maharashtra Protection of Interest of Depositors Act, 2016, as it does not apply to banks. It is also not clear, they say, why Bank of Maharashtra was singled out for action, when the consortium of banks, led by State Bank of India, had also advanced loans to the DSK Group.