ABG Shipyard Biggest Scam In Indian Banking History ₹ 22842 Crore
This is the story of ABG Shipyard. Which has committed the biggest scam in Indian banking history. In fact, even bigger than the Nirav Modi scam. In the case Nirav Modi scam, we saw that many innovative techniques were used. But here there is nothing like that.
Committed a scam with 28 banks
In this case, the technique is still old but some more advanced elements have been added to it. So let us discuss how a small company, in a period of five years. Committed a scam with 28 banks worth Rs 22842 Crore. Before understanding how was this scam executed, let us understand the history of this company in brief.
History of ABG Shipyard
ABG Shipyard is the main company of the ABG Group. Which started in the year 1985. And as the name suggests, the company deals in manufacturing ships and repairing them. For this the company has two shipyards, one is in Surat of Gujrat and the other one in Dahej of Gujrat. And till now the company has made 165 ships in total.
The fact is, after 1991, the business of the company grew very fast. The company started getting huge orders. From India and abroad. And therefore the profit of the company also went up very fast. Till now the story was very nice.
scam begin in 2008
The main story begins in the year 2005. The company says that after the financial crisis of the year 2008, the orders that the company was getting went down drastically. And because of that, the inventory of the company went on increasing.
The company was not getting sufficient funds to run its operations. In this situation, the company took the help of loans. And in between the year 2005 to 2010, the company started taking huge loans. If we look at this loan exposure, the maximum exposure is of the ICICI bank of Rs 7089 Crore After that it is the IDBI Bank and after that SBI.
Now here is one shocking fact. Whenever banking frauds take place, PSUs or government banks are at the forefront. But here, there is a slight variation. Here is one shocking fact which you would know after seeing the company’s net profit. From 2006 to 2010, the company’s net profit was not too high. On average, it was somewhere between Rs 130 Crore to 150 Crore. And despite that, the company was given a thousand of crores of loans. For some of these loans, some assets of the company were mortgaged, And for some loans, the promoters of the company gave their personal guarantee.
ICICI bank
The question here also arises that the ICICI bank that has given away these loans, it has been given in whose tenure? Because recently, the ex-CEO of ICICI bank, Ms. Chanda Kochhar was very much in the news, regarding the debt of Videocon.
She has been accused of giving the loan to videocon Industries, And the second or third day after the loan disbursement, Mr. Venugopal Dhoot of Videocon, invested in Chanda Kochhar’s husband’s company. And a lot of facts about these loans were in the news.
Ms. Chanda Kochhar was the CFO of the ICICI bank from 2007-to 2009. And in 2009, she became the CEO of the bank..How many loans out of these have been given under her tenure? It can only be determined after the inquiry.
After giving away these loans, you must be expecting that the amount which the company had taken as debt from the banks, it must have been reinvested that amount back into the company. And they must have tried to grow the company further. But nothing like that has happened here.
One probable reason here is that around the year 2008, the company understood that this business is sinking now. So they thought it is better to earn more through bank loans as compared to their earnings through their business. And therefore, the company started taking huge loans. And they started transferring these loans to the related parties. This technique that they have used is called round-tripping Here the other companies of the same group have transferred the money. The reasons cited for those payments were loans, accommodation deposits, etc.
ABG Shipyard itself was in very bad shape of finance, and it had to borrow some loans, This company invested in another company of their own group ABG Singapore. They invested Rs 300 Crores. Also, they transferred a lot of money to ABG Singapore as loans. It did not stop right here. They constantly transferred money to other companies in their group. And these transactions were so complex that to date a lot of those transactions have not been cleared.
Round-tripping
I am citing some examples of how these transactions were done. Initially, the ABG Shipyard would transfer some of its money to its subsidiary company. Some money out of those funds was returned by the latter company, and the rest of the amount was transferred to a third company. The third company used to transfer the funds to a fourth company And that’s how the funds were rotated. This, in the language of finance, is called Round Tripping. Banks are also doubting that perhaps some of this money was also transferred to tax havens or the island nations.
Where it is very difficult to track that amount. Last time also we saw that Camon Islands is an island nation, where there are more than 17,000 companies in just one building. Some companies go there to save on tax. While some other companies go there for committing fraud. And the details of the owners of those companies and other details are not provided.
Therefore in cases related to round-tripping, many times, money is rotated in these island nations. Now was the time for the repayment of loans. Since you have borrowed a loan, you will have to return it back. But the bank’s money was already used by the company in their wrongful means.
Ernst & Young to conduct a forensic audit
Now, they were finding it hard to return the money. Hence, from the year 2013, the company started defaulting on loans. The defaults went on for a few years. When the bank officials saw the transactions of the company, the SBI started doubting them. After that, all these banks appointed Ernst & Young to conduct a forensic audit of the ABG Shipyard. That report was submitted by Ernst & Young in January 2019.
The first complaint to the CBI in November 2019
Then it was revealed that a very big fraud has happened here. What seems problematic here is that the report was submitted in January 2019, and the State Bank of India filed its first complaint to the CBI in November 2019. Meaning in such a big case, around 10 months of time got lapsed. Afterward, the CBI asked for some more documents and some more information was demanded, which took some more time.
Then in December 2020, the SBI filed its second report. And after that, the CBI registered the FIR. No action will be taken against the promoters of the company. But it is also important to conduct an inquiry on the bank officials. that when the profits of a company are so low, on what basis were such huge loans disbursed off to them?
Another shocking fact is that although the company has shown profits here from 2005 to 2012-13, the company’s cash generated from its operating activities determines how much cash did the company receive every year, it was found to be negative in every alternate year. And most importantly, the cash generated from operating activities is a little difficult to manipulate as compared to profits. And just by looking at this figure, one can tell about the real status of the company. Also, the fixed assets of the company were also less than Rs 1000 Crore.
So now, the question arises, that when the fixed assets of the company are low, and the financials of the company are also weak, then on what basis were such big loans given away?
