Home / Industry / Banking /  An Odisha-based micro lender at the centre of a 251 crore loan fraud

MUMBAI: A fraud of 251 crore unearthed at a small Odisha-based non-banking financial company (NBFC) micro-finance institution (MFI) has put the spotlight on “bogus accounts" as the modus operandi for fund diversions.

Sambandh Finserve Private Limited (SFPL) has disclosed to a rating agency that it has defaulted on its repayments because of a fraud in its books. The company with debt of 433 crore is undergoing an internal investigation as ordered by its board.

In a letter to the board on 7 October, four senior company executives detailed how the actual assets under management (AUM) is approximately 140 crore as against the reported figure of 391 crore as on 30 September.

“The reported AUM is inflated and non-existent. The gap is approximately 251 crore," the letter alleged, a copy of which has been reviewed by Mint.

The letter said that the gap in portfolio was managed by fictitious disbursement, subsequent withdrawals and deposited as fictitious collections under the direction of the chief executive. This has been going on since FY16 and the gap has gone beyond control, it said.

An email sent to Sambandh remained unanswered till the time of publication. The company’s chief executive is Deepak Kindo.

“There is also pilferage in the cash withdrawn for disbursement by the managing director and CEO, and diverted to other entitles namely Diya Dairy & Agroprocessors Pvt Ltd, Kshamta Foundation, Regional Rural Development Centre, DK Enterprises, Utkal Dairy and other unknown persons or entities," the letter said.

The matter came to light after the company defaulted on its bank loan repayment in October and Brickwork Ratings (BWR) downgraded the ratings of the company to default category. The rating agency said on 13 October it had a brief conversation with the company’s chief financial officer. Subsequent to the lender's feedback, BWR had a brief telephonic discussion with the company’s chief financial officer who said there were some internal frauds discovered at the end of September “wherein large quantum of bogus loans entries were made in the book of accounts of the company".

Of its total debt of 433 crore, 383 crore is in the form of bank loans. Lenders to the company include State Bank of India (SBI), Yes Bank, Bandhan Bank, Axis Bank, DCB Bank, ICICI Bank, Northern Arc Capital and Small Industries Development Bank of India (SIDBI), among others.

“It is surprising that some of the micro lenders Sambandh raised money from were not able to realise that the loanbook was allegedly inflated. While some of the large private and public sector banks that have exposure to the company might not have that kind of ground-level intelligence, the micro lenders should have known in advance about this incident," said a financial sector analyst on condition of anonymity. He added that 95% of micro-finance loan disbursements happen directly into bank accounts and ticket sizes are about 25,000.

“If such a substantial portion of the loan book is alleged to be fraudulent, it is anybody’s guess as to how many fictitious loan accounts would have been created," the analyst said.

A similar method was used in the case of Dewan Housing Finance Corp Ltd (DHFL) as well, which is currently undergoing insolvency resolution at the National Company Law Tribunal (NCLT). Investigating the money trail, Enforcement Directorate (ED) had told a court DHFL diverted funds to the tune of 12,733 crore by using 1 lakh fake borrowers to 80 alleged shell entities.


Shayan Ghosh

Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
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