Operational Risk Management,riskregulation,Risk and Regulation,

Operational Risk Management,riskregulation,Risk and Regulation,

Shares of state-run Union Bank of India plunged to 11-year low a day after the Central Bureau of Investigation (CBI) registered a case against the Hyderabad-based Totem Infrastructure and its promoters and directors - Tottempudi Salalith and his wife Tottempudi Kavita - for allegedly defrauding a consortium of eight banks for close to Rs 1,400 crore. The Union Bank of India stock fell 8.76 per cent or 8.30 points to 86.40 level on the BSE.

Over the past two months, the CBI has reportedly filed at least seven FIRs related to loan defaults and frauds. A Mint report claimed that it was Union Bank of India's industrial finance branch in Hyderabad that filed the complaint against Totem for cheating the public sector bank to the tune of Rs 313.84 crore. The total outstanding dues of the company reportedly stand at Rs 1,394.43 crore.

According to the report, Union Bank's complaint not only alleges that "the company had diverted funds by opening accounts outside the consortium", but that it also showed excess expenditure, inflated stocks and magnified wages. "The entire sale proceeds were not allegedly routed through the dealing branches of consortium banks," added the complaint.

Incidentally, Totem - involved in road projects, waterworks and construction and was a subcontractor for L&T, RITES and IRCON International - also figured in the 2015 list of the biggest tax defaulters released by the Income Tax Department, with pending dues of over Rs 400 crore. So, the taxman had reportedly announced a reward of up to Rs 15 lakh for information on the "untraceable" company and other defaulters on the list.

Though the construction and infrastructure company's account had slid into the non-performing asset category way back in June 30, 2012, the state-owned lender filed the complaint just a day ago. This development follows SBI filing a case of loan fraud against Chennai-based Kanishk Gold Pvt. Ltd for allegedly defrauding 14 banks of Rs 824.15 crore. It's worth mentioning here that Uday Kotak, the head of the country's fourth largest private bank, Kotak Bank, had recently pointed out that the "sensitive underbelly of the SMEs business" was yet to reveal its hand fully. Perhaps this is just the beginning of more such bad news in the days ahead.

Meanwhile, sources in CBI told India Today that the accused have been located in Hyderabad and probe is being carried out in connection with the case. The bureau has also issued a Look Out Circular against the promoters to prevent them from leaving the country and are reportedly tracking their movements.

Re-disseminated by The Asian Banker from BusinessToday.com