Personal Website of R.Kannan
My Encounters with Corporate Corruption
in my Service

The new management responded in 1991 by releasing my promotion to Scale IV. I was posted as Chief Inspector in Scale IV with all-India jurisdiction to inspect VLBs, ELBs, Regional, Zonal Offices and Departments of Head offices. So far the good. This honeymoon started in 1988 continued to 1992.

But history has the dexterous taste for repeating itself. It occasioned very soon in my very second programme of inspection as Chief Inspector, in my inspection of a New Delhi Branch (let me specify this Branch as 'M', to keep its identity undisclosed here). I happened to detect extensive and embedded corporate corruption in credit disbursement entrenched at most of the VLBs in the Delhi Zone. It all start from as early as 1985 stretching the tenure of the then Zonal Manager and his immediate predecessor. All the advances (nearly 100%) of 'M' Branch were sticky and found difficult of recovery. These were ab initio made with pre-planned and executed fraud. I also detected linked bad advances with corrupt background in other branches too indicating a chain relationship by groups of borrowers acting on common modus operandi. I pursued the lead and moved from branch to branch to seven more branches (Branch 'R', 'C', 'D', 'G', 'S' etc.) in the Zone to unearth a scam type corruption & fraud in a chain of 52 loan accounts, with credit disbursement aggregating Rs.8 Crores all concentrated in respect of borrowers in the Trans-Jamuna region of Delhi Zone and entertained by the eight different branches, in addition to a dozen fraud accounts in the 'M' branch itself independent of the other frauds.

I reported all the frauds. I submitted individual factual reports and also consolidated report indicating the overall position. No kudos or applause for me. My findings were not disputed. No frauds were denied or disputed. No one challenged anything I reported. But a decision was taken at the highest level not to allow me further to inspect VLBs of the Bank at Delhi or elsewhere, but to entrust me with inspection programmes for Regional and Zonal offices, where I could only do systems audit and find no scope to expose frauds. The reaction was to pre-empt me from detecting frauds and the authorities wanted such developments to remain concealed. The Zonal office, Delhi took little action by way of follow up on my findings over the scores of fraud reports. My inspection Reports were getting dusty at the Branch and at the Zonal office. It was the duty of ZO to take follow-up action.

All advances in Shadhara area pertained to borrowers in copper/aluminum cable manufacturing units. Ghost units were financed in many cases. Bank released loan amounts to suppliers of machinery, who did not actually exist. No unit financed had signboards exhibited and many borrowers took loans for the same ghost units from different banks showing the same non-existing security. Borrowers were well acquainted with Bank's internal credit assessment systems and procedures. They could get finance if they could simply generate a project report manipulating financial data to be seen complying with the requirements. Contact men arranged this facility of quick and easy funds negotiating with accommodating chief managers and fixing targets for CMs for such advances. Chief Managers' offices with liberal loaning power were chosen. Advances allowed were reported to the Zonal offices and audited regularly. Executives from the Zonal Office visited these Chief Manager's offices every quarter for regular scrutiny of the advances. There were also regular inspections every year from Head office. Despite all these checks and controls, the malady was continuing unabated and persisted unhindered.

It is out of scope here to narrate the entire modus operandi or full details of all the frauds I have submitted voluminous reports and they form part of the Bank's records of the Inspection & Control Division, Zonal Office and respective branches. But a few highlights will indicate a clear picture.

The lead account or earliest borrower to initiate the game of cheating the bank at Branch 'M' was 'National Wire Industries' (name changed to conform to ethical reporting standards). This account started dealing with 'M' branch in 1985. Successively they were granted Term Loans and Working capital, based on fake project reports and fictitious balance sheets with forged signatures of certifying chartered accounts. Bank delivered pay orders for the term loans in the name of non-existent suppliers to the borrowers themselves, who illegally opened current accounts in these suppliers' names with other Banks and encashed and misused them. National Wire Industries had two small rooms at Shadhara (about 15' x 15') with wire drawing machinery, but with no provision for storage of materials (either raw material or finished goods). It deserved a loan of Rs.25,000/- for working capital, but was granted fund-based limits of Rs.23 Lacs, plus Term Loans and non-fund based limits to a saturating point of the Chief Manager's discretionary loaning powers. It was in fact a tiny unit fit for jobbing and not for stock holding. They obtained advances against bills, drawn on fictitious parties, accompanied with fake transport receipts. They opened a number of current accounts for different firms of theirs with different Banks in Delhi and were cunningly rotating funds from bank to bank By this manipulation they built fictitious turn over in their accounts, which the branch deemed as healthy business turnover to justify the advance granted.

This same borrower at branch 'R' located just a stone's throw distance from Branch 'M' in the busy Cannought Place area of New Delhi had borrowed for another fake unit. This time the loan was availed showing the same unit to three different banks with different names for the unit to each bank i.e., from our Bank and also from SBI and BOI hypothecating the same security. The borrower is a king of cheats and was able to successfully hoodwink all three banks for a number of years. This party had also extensive fraudulent borrowings from Branch 'S' of our Bank. Bank's exposure to this borrower in 1993 was Rs.2 Crores, all without any security and fraudulently obtained. Alas! no action against this ace borrower, who had cheated different branches and different banks. In our Bank later some make-believe departmental enquiries were shown to have been conducted against a few officers for the frauds in this account after several years, (in 1995/96) just at the point of their retirement from service to close the episode with token or empty punishments.

In a country there can be only one king. But in the kingdom of fraud there can be any number kings and emperors. The UKG (let me call the group with the pseudonym 'United group'. They are a parallel line to National Wire Industries, as both were close friends in business and in 'dealing' with our Bank. United group also started its dealings from 1985 at Branch 'M' and availed three fictitious advances, which were transferred as NPA in 1989. At this stage they availed fresh fraudulent bulk advances in four accounts in Branch 'G' duly sanctioned by Zonal office, Delhi, who also had nearer the same period authorized transfer of the earlier accounts of the party to NPA. In between they availed loans from another nationalized bank, which too subsequently were inherited by our Bank on the take over of that Bank. This borrower also was able to siphon off Rs.2 Crores from our Bank through crafty and unscrupulous methods. Though these frauds stretched between 1985 to 1993,and all reported no penal action was initiated on this borrower, at least as long as I served the Bank i.e. up to 1996.

In the contemporary period of my inspection the chief manager of branch 'S' went on a spree of extending spurious advances aggregating to one crore arranged through a middlemen chartered accountant. This chartered accountant was in fact instrumental in supplying stereo-type project reports to almost all the 52-borrowal accounts of Shadrara mentioned by me earlier. Exhaustive reporting of the happenings in Branch 'S' was also done by my colleague Shri "S.K.K", Inspector. After the investigations started this Chief Manager (we will call him as D.M.Shah, assumed name) simply stopped coming to the branch and his whereabouts were not known for several years. In literal language he deserted employment, and left his usual place without resigning and handing over charge. Though fraudulent transactions for more than rupees One Crore was reported, the zonal office did not take steps to trace him or bring him to book. In the fitness of things this and other advances of Shadhara and elsewhere reported by me should have been entrusted to CBI for investigation. But not a single fraud was entrusted to CBI by the Zonal Manager.

At the point of his retirement in 1996/97 the chief manager of 'S' Branch surfaced again to face a meek departmental inquiry ordered by the Bank. HE was awarded a punishment of "removal from service". I also do not know if this inquiry was brought to the knowledge of CVC and if their advice obtained in first and 2nd stages of the inquiry. The chief manager of Shahdhara Branch had also prior antecedents of vigilance cases. I will call him as D.M.Shah (not his real name). Mr.Shah was earlier Regional Manager of Muzafar Nagar Region in U.P. At the main branch at Muzafar Nagar he deposited a fixed deposit in the name of his wife and availed a loan against the same. It was around the year 1991 or 1992. Later when he was transferred from Muzzafar Nagar to Punjab, he got the FD transferred from the branch to a branch in Punjab. He later encashed and withdrew the FD amount at the new branch, leaving the loan unadjusted and unsecured at the original branch at Muzaffar Nagar. As Chief Inspector, I inspected the main Branch at Muzzaffar Nagar in 1993 and commented about this fraud in my report.