ABG Shipyard bank loan fraud Complete analysis

ABG Shipyard established in 1985, which was once the powerhouse in shipbuilding, has found itself behind India’s 'biggest bank fraud'. The Central Bureau of Investigation, acting on a complaint filed by the State Bank of India (SBI) on August 25, 2020, and on the basis of the complaint, the necessary investigation was done and registered an FIR in the loan scam case on February 7, 2022. 

It is assumed that ABG Shipyard has conducted bank loan fraud from various banks simultaneously to an astonishing figure of 22842 crores. The major banks include SBI, ICICI, HDFC, PNB, IDBI, Bank of Baroda, Indian Overseas Bank, etc. According to CBI's statement in the case, the shipbuilding firm has availed loans since 2005, but the account turned NPA in 2013 as the company fell prey to the global financial crisis of 2008, resulting in the company becoming a non-performing asset.

It is also understood that ABG Shipyard has diverted its fund to other companies and also is guilty of using investment through overseas subsidiaries. After the failed attempt to restructure the bad debts through SBI Bank during March 2014, ABG Shipyard debt was declared as NPA during July 2016 on the basis of accounting back-dated to 30th Nov 2013. It is well known that auditing and analyzing the bank's details need sufficient time and CBI booked the charge sheet sooner than expected time. 

According to SBI's complaint, the company owes Rs 2,925 crore to the SBI bank, Rs 7,089 crore to ICICI Bank, Rs 3,634 crore to IDBI Bank, Rs 1,614 crore to Bank of Baroda, Rs 1,244 to Punjab National Bank, and Rs 1,228 crore to Indian Overseas Bank.

This video has categorically narrated all possible details that could help understand the issues of loan fraud and the reasons associated with it. 

The basic reason of this failed corporate is due to the then prevailing condition of providing overhead fresh loans over the existing bad loans. For example, suppose if a corporate company obtain a loan of 600 crores and after a few years if you fail to remit on time and it becomes 750 crores including interests and penalties. Then instead of taking remedial measures to tighten the loan, a new loan is approved for 900 crores and after deducting 750 crores 150 crores is given as rolling capital. Under this system, banks safeguard their balance sheet by reducing their NPA and reflecting new healthy loans in profit and corporate companies never feel the pressure. 

Now, after the NDA government under Modi came to power, one of the most important rules Modi government implemented was reform with respect to this liberty. Modi government decided to stop bailing out the hopelessly failed companies with fresh loans. This resulted in calling spade a spade situation with respect to hopeless bad loans and fresh loans renewal was discontinued. 

It is because of this new banking rule, all big corporates which are practically not running in good healthy condition were denied fresh loans against their existing default loans... Thus one after another, all badly performing defaulters were made to face the reality in the very interest of the banking system. 

It is a way of stopping the losses of banks by accepting the reality than fooling the bank and nation by providing fresh renewed loans to the hopeless defaulters. Kindly remember, renewed loan option is denied only to hopeless defaulters, not to the genuine defaulters who can be assisted to help their business. 

Sudesh DJV 

Indore MP India 

18th Feb 2022 

9:40 pm

Sudesh DJV writes on contemporary subjects in the form of Articles and poems which are in the interest of the Nation in particular and for Mankind in general.