23 Jun, 18

Explainer: The Bank of Maharashtra saga

The Pune-based public sector lender is under the radar of Reserve Bank of India’s corrective action framework due to high non-performing assets.

By Zimble Digital

Bank of Maharashtra may be the scapegoat for another corporate scam worth billions. Credit: Twitter/Livemint

By Prarthana Mitra

The arrest of Bank of Maharashtra Chief Executive Officer (CEO) Ravindra Marathe on Wednesday has left suspicions of foul play in its wake, at least among leading bankers following the development closely.

The Economic Offences Wing of Pune police charged six persons in a collusion case lodged against city-based real estate developer D S Kulkarni and his wife. Many have hinted at political reasons behind the move chiefly because Bank of Maharashtra was not the only bank that lent funds to Kulkarni.

Here’s what happened

On June 20, Marathe and his colleagues at the Bank, including Executive Director Rajendra Gupta, Zonal Manager Nityanand Deshpande, and former CMD Sushil Muhnot, were booked for colluding with DSK Developers (DSKDL). Expected to held in custody till June 27, the accused were charged with diverting money and committing fraud against shareholders, in a total scam worth Rs 20.43 billion. According to the charge sheet, they floated nine different firms to syphon funds from 33,000 investors and fixed deposit account holders.

Executive director A C Rout reportedly addressed the shareholders’ concerns, saying that the bank’s present outstanding exposure to the group is Rs 945.2 million, which is fully secured. The bank subsequently declared DSKDL and its promoters as wilful defaulters, greenlighting due recovery processes.

Why you should care

However, many bankers have spoken out about the circumstances leading up to his arrest. “More and more bankers come under investigative net without any proof of malfeasance,” the chief executive of a leading bank told Economic Times earlier on Thursday. All India Bank Employees Association (AIBEA) General-Secretary C H Venkatachalam in a statement declared that since the banks are responsible for DSK’s fraudulent actions, arresting them at this stage in connection with this is unwarranted.

The Pune-based public sector lender, in a statement earlier this year, had said that its shareholders expressed faith and confidence in the bank’s leadership to turn things around for the ailing real estate firm. At present, the bank is under the radar of Reserve Bank of India’s corrective action framework due to high non-performing assets. This is perhaps what accounted for the manner in which Marathe, Gupta and other officials of the bank were taken into custody for interrogation.

“Marathe was arrested on his way back home from yoga class. He was not even allowed to go home but was taken into police custody for investigation, even before the crime is established,” a source added with anguish in an interview with ET.

The turn of events is surprising as Bank of Maharashtra was not the only bank which has given loans to DSKDL, in fact, it was not even the lead bank in the list of lenders which includes State Bank of India and Union Bank of India. This justifiably leads senior bankers to surmise that Bank of Maharashtra might be getting scapegoated and it remains to be seen whether we are witnessing yet another instance of corporations scamming banks.

Prarthana Mitra is a staff writer at Qrius

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Explainer: The Bank of Maharashtra saga

Here’s what happened

Why you should care

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