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Explained: How ABG Shipyard Pulled Off India’s Biggest Banking Fraud

Termed as the biggest banking fraud, the ABG Shipyard Limited, a Gujarat-based shipbuilding firm, defrauded a consortium of 28 banks including the State Bank of India (SBI), IDBI and ICICI, accounting for Rs 22,800 crores. 

ABG Shipyard defrauded a consortium of 28 banks accounting for Rs 22,800 crores
ABG Shipyard defrauded a consortium of 28 banks accounting for Rs 22,800 crores

Over the past few days, ABG Shipyard is making headlines. Not only the scam by this shipbuilding company has brought the Narendra Modi government under fire but has also wedged political war between the opposition and the Modi government. Termed as the biggest banking fraud, the ABG Shipyard Limited, a Gujarat-based shipbuilding firm, defrauded a consortium of 28 banks including the State Bank of India (SBI), IDBI and ICICI, accounting for Rs 22,800 crores. 

According to CBI, ABG Shipyard took loans from these banks and diverted them. The money was also invested in overseas subsidiaries, for buying assets in affiliated companies and for transferring money to related parties. The shipbuilding company, which turned into a non-performing asset (NPA) in 2013, also violated the terms of Corporate Debt Restructuring (CDR). CDR is a mechanism in which the lender banks either reduce the interest rates on the loans of the distressed borrower company or increase the tenure of the repayment. 

SBI in its press release dated February 13, 2022, said that fraud is mainly attributed to diversion of funds, misappropriation and criminal breach of trust. 

Delay In Determining The Fraud

The scam came to light after audit agency Ernst and Young LLP (EY) submitted its report in January 2019, flagging that the scam took place between 2012 and 2017. Following this, SBI raised the issue in June 2019 however an FIR was filed by the bank in November 2019. A more comprehensive FIR was filed in December 2020 but a case was registered by the Central Bureau of Investigation on February 7, 2022, against ABG Shipyard Limited. 

According to a report by The Print, EY also mentioned that the money was transferred to PFS Shipping India Ltd and that ABG Shipyard invested $43 million, which was allotted for its Master Restructuring Agreement (MRA), in ABG Singapore as a potential diversion.

How Much Money Does ABG Shipyard Owe To Banks?

ABG Shipyard owes Rs 7,089 crore to ICICI Bank, Rs 2,925 crore to SBI, Rs 3,639 crore to IDBI Bank, Rs 1,614 crore to Bank of Baroda, Rs 1,244 crore to Punjab National Bank, Rs 1,327 crore to Exim Bank, Rs 1,244 crore to Indian Overseas Bank and Rs 719 crore to Bank of Baroda, among others. 

Why This Scam Is India’s Biggest Bank Fraud

The previous frauds by diamond trader Nirav Modi and his uncle Mehul Choksi accounted for over Rs 14,000 crore, whereas the fraud by Vijay Mallya accounted for Rs 9,900 crore. 

Actions Taken So Far

The Central Bureau of Investigation has registered a case against ABG Shipyard on February 7, 2022. The investigative agency has also booked ABG Shipyard Limited’s former Chairman and MD Rishi Kamlesh Agarwal, former executive director Santhanam Muthaswamy, and directors Ashwini Kumar, Sushil Kumar Agarwal, and Ravi Vimal Nevatia. Meanwhile, searches have also been conducted in 13 locations of ABG Shipyard. 

ABG Shipyard Limited is a subsidiary of ABG Group which was founded in 1985 and mainly operates from Surat and Bharuch in Gujarat. It has constructed over 165 vessels over the past 16 years. According to The Print, the company spiralled to losses after the global financial crisis of 2008. SBI had earlier said that multiple efforts were made to revive the shipping firm in 2014 but the operations of the company could not revive. The company was classified as NPA in 2016.

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