Waryam Singh, a former chairman of Punjab and Maharashtra Cooperative Bank, was arrested by the Economic Offences Wing of Mumbai Police on Saturday in connection with the alleged Rs 4,355 crore scam at the bank.
This is a fourth arrest in the case.
The EOW has already arrested former managing director of the bank Joy Thomas, and promoters of HDIL group Rakesh and Sarang Wadhawan in the case.
Waryam Singh (68) was taken into custody by the officials of the special investigation team of EOW from Mahim Church area here, a police official said.
The police earlier visited his house in suburban Andheri West, but he wasn't there.
Singh was brought to the EOW office and questioned about the alleged scam, following which he was arrested, the official said.
A letter purportedly written by Singh to the EOW, seeking to surrender, circulated on social media in the evening, but the police denied that he had surrendered.
According to the FIR registered by the EOW, HDIL group promoters colluded with the bank management to take loans from the its Bhandup branch in Mumbai.
Despite non-payment, bank officials allegedly did not classify these loans as non performing advances, and hid the information from the Reserve Bank of India.
They "replaced" HDIL's 44 loan accounts with over 21,000 fictitious loan accounts to "camouflage" HDIL's loan defaults, the EOW told a court here on Friday.
The bank, which has 137 branches and over Rs 11,000 crore in deposits, was put under restrictions last week after the RBI discovered financial irregularities.
According to sources, overall exposure of the bank to the financially stressed HDIL group is around Rs 6,500 crore or over 73 percent of its advances, and all of it is not being serviced.
The Enforcement Directorate also conducted raids at six locations in and around Mumbai on Friday after taking cognisance of the FIR registered by the EOW.
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