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A Canara Bank branch in Bengaluru.IBT Media/S V Krishnamachari

The fallout from yet another bank fraud hit the markets on Tuesday, with state-owned lender Canara Bank slipping as much as 5 percent in the morning trade.

The share dive in Canara Bank came after the Central Bureau of Investigation booked a former chairman of the bank in a fraud case involving about Rs 68 crore. Shares in the bank dropped to an intra-day low of Rs 250 on NSE after the CBI filed charges of criminal conspiracy, cheating and forgery on ex-CMD RK Dubey and other officials.

The CBI said its findings showed that bank officials had colluded with the executives of a private firm in processing the huge loan that turned sour in no time. "The said private company had cheated Canara Bank to the tune of Rs68.38 crore through its accounts at Kamla Nagar, New Delhi branch of the Canara Bank. The loan was sanctioned in December 2013, disbursed within the next three months. It turned NPA on 29 September 2014," a CBI statement said.

The CBI slapped charges following a case it had registered in January 2016 against Dubey and two executive directors, Ashok Kumar Gupta and V S Krishna Kumar, following allegations that Occasion Silver Pvt Ltd had cheated the bank to the tune of $10.5 million.

Bogus transactions

The Delhi-based company trades in silver, gold, diamond and imitation jewelry. Two company directors, Kapil Gupta and Raj Kumar Gupta, have also been booked by the CBI. According to the investigating agency, the jeweler defaulted on the loan, which was taken four years ago, within a year of availing it.

"The funds were siphoned off through a chain of alleged bogus transactions facilitated by fake sister concerns, family members and bank officials including the top executives," the CBI said.

Canara Bank was one of the large public sector banks whose auditors were subjected to scrutiny by the Reserve Bank of India last year. The RBI questioned scores of auditors at 27 public sector banks on the process and logic they had used to compute and report write-downs at the lenders in August. Auditors at State Bank of India (SBI), Punjab National Bank (PNB), Bank of Baroda (BoB), Canara Bank, Allahabad Bank and Bank of India had been given show-cause notices.

India's banking sector has come under increased scrutiny after No.2 lender Punjab National Bank (PNB) revealed in February that it suffered massive losses from a Rs 13,800 loan fraud masterminded by diamond merchant Nirav Modi.

The gross non-performing assets in the public sector banks stood at Rs 7.6 lakh crore at the end of FY 2017. More slippages are estimated this fiscal, and the GNPA is projected to rise to almost 9 lakh crore. In comparison, the gross NPAs of private banks as of August 2017 was Rs.73,842 crore. That's less than 10 percent of the public sector NPAs. As per the Reserve Bank of India's Financial Stability Report apart from NPAs, the stressed assets account for another 12.8 percent of the total loans.

Andhra Bank, another state-owned lender, last week pegged its exposure to the Sterling Group bad debts at Rs 578 crore after the shares plunged to 15-year lows. In a stock exchange filing, Andhra Bank said it was the lead bank for two Sterling Group companies and that it had classified Sterling Group companies as non-performing in March 2015.

Andhra Bank shares went into free fall after the Enforcement Directorate slapped additional charges on former director Anup Garg over the Rs 5,000 crore fraud involving Sterling Biotech. The ED has said senior executives of the group and Garg had conspired to manipulate accounts and facilitate the fraud.

With more loan frauds tumbling out of PSB shelves, RBI governor Urjit Patel last week raised the issue of lax regulations at PSBs. He said the apex bank has less regulatory control over government-owned banks than in the case of private banks.