(Bloomberg) -- India's Allahabad Bank Ltd. disclosed financial fraud amounting to almost 18 billion rupees ($258 million) by Bhushan Power & Steel Ltd., becoming the second state-run lender in a week to report fraud by the bankrupt steel mill.
Bhushan Power misappropriated bank funds and manipulated account books to raise money from consortium lender banks, Allahabad Bank said in a filing to stock exchanges on Saturday. The lender has set aside 9 billion rupees to account for the fraud and said it expects “good recovery” from the insolvency case, which is currently before India's bankruptcy court.
Punjab National Bank, the 124-year-old lender that was stung by a $2 billion fraud last year, said last week that Bhushan Power had manipulated accounts resulting in a 38 billion rupee fraud. A vast majority of the fraud took place at PNB's Chandigarh branch, and also involved offices in Hong Kong and Dubai, it said.
Misappropriation of funds at state-run banks are coming at a time when India is battling the world's worst bad-loan ratio. Time-bound resolutions under a bankruptcy law are the key to cleaning up $190 billion stressed loans quickly, helping banks dodge higher provisions attached to missing resolution timelines.
India's bankruptcy court, the National Company Law Tribunal, in April completed hearing arguments and reserved verdict on JSW Steel Ltd.'s 197 billion rupee offer to buy Bhushan Power. Under that offer, Bhushan Power's financial creditors would get 41% of the total dues owed to them, according to the Resolution Professional's lawyer.
To contact the reporter on this story: P R Sanjai in Mumbai at psanjai@bloomberg.net
To contact the editors responsible for this story: Shamim Adam at sadam2@bloomberg.net, Alpana Sarma, Chan Tien Hin
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