July 7 (AZINS) Public sector lender Punjab National Bank (PNB) said on Saturday that it has detected a fraud of more than Rs 3,800 crore by Bhushan Power & Steel Ltd (BPSL) and has reported it to the Reserve Bank of India (RBI).

PNB said Bhushan Power & Steel Ltd misappropriated bank funds and manipulated its books of accounts to raise funds from consortium lender banks.

"On the basis of forensic audit investigation findings and CBI filing FIR, on suo moto basis, against the company and its directors, alleging diversion of funds from banking system, a fraud of Rs 3,805.15 crore is being reported by bank to RBI," Punjab National Bank (PNB) said in a regulatory filing.

"It has been observed that the company has misappropriated bank funds, manipulated books of accounts to raise funds from consortium lender banks. At present, the case is at NCLT which is in advance stage and the Bank expects good recovery in the account," PNB added. PNB said the bank has already made provisions amounting to Rs 1,932.47 crore, as per prescribed prudential norms, for the BPSL account.

PNB said its domestic exposure to Bhushan Power & Steel Ltd (BPSL) stood at Rs 3,191.51 crore and overseas exposure of US $49.71 million (approx Rs 345.74 crore) at Dubai branch and US $38.51 million (approx. Rs.267.90 crore) at Hong Kong branch.

The state-run bank has reported a new fraud at a time when it is recovering from a major financial embezzlement of around USD 2 billion (around Rs 13,000 crore) by diamond merchant Nirav Modi that was reported in February 2018. Modi allegedly acquired fraudulent letters of undertaking (LoUs) from one PNB's branches for overseas credit from other Indian lenders, and is being probed by CBI and Enforcement Directorate among other agencies. 

According to a report by the Business Standard, Bhushan Power owes more than Rs 37,00 crore to a consortium of lenders led by PNB and the RBI identified it as the sixth out of the 12 large stressed accounts.

The company had defaulted on loans and the banks had to take a haircut of more than Rs 20,000 crore as part of the resolution process.

SFIO probe

Earlier on Monday, the Serious Fraud Investigation Office (SFIO) filed a 70,000-page complaint in the Bhushan Steel case wherein the probe agency has found "extreme misuse" of the corporate structure by the promoters which reduced corporate governance requirements to paper formalities, sources said.

The complaint has been filed at the special court, Dwarka, New Delhi.

Earlier, the agency had arrested company's former MD Neeraj Singal, who is now on interim bail.

The investigation has inter alia unearthed fraudulent misuse of letter of credits to the tune of around Rs 45,000 crore, gross misuse of the first-time adoption of Ind-AS in mis-stating the financial statements of the company, sources said.

There was fraudulent overvaluing of assets by around Rs 15,000 crore to inter alia write-off inventory worth around Rs 6,000 crore, trade receivables to the extent of Rs 1,250 crore, they added.

According to the sources, promoters used more than 150 companies to build a complex web of transactions to carry out the siphoning off funds to hoodwink the lenders and other investors in the company.

The investigation brought out the extreme misuse of the corporate form by the promoters who ran the listed company more like a proprietorship concern reducing corporate governance requirements to paper formalities, they added.

Sources also said the role of statutory auditors has again come in focus with their conniving role glaringly coming out. The agency has also raised questions on the role of bank officials in perpetuating the fraudulent activities, they added.

(With PTI inputs)