Name:- Vishal Vasant Kolekar

Roll No.:- 22
Subject:- Banking and Financial Services Institutions

Case Study on

ABG Shipyard Scam – India’s Biggest Banking Fraud!

Introduction

Founded in ABG Shipyard Ltd. is the flagship company of the ABG Group. Or in the current
context, it at least was. The company was incorporated by Rishi Kamlesh Agarwal with the
aim of building ships and repairing them. The company has shipyards in Dahesh and Surat in
Gujarat.

The company’s huge capital requirement needs were provided by a consortium of 28 banks.
This consortium was led by ICICI Bank.

Post the opening up of the Indian economy in 1991 thanks to globalization the Indian shipping
industry experienced exponential growth. This resulted in huge demand for transportation
via sea routes. One may wonder why transportation through the sea was preferred over the
air. This is because transportation by sea is up to five times cheaper than that by air.
This resulted in over 90% of trade occurring through the sea. This resulted in huge business
opportunities for companies like ABG shipyard. This worked in ABG’s favor.

Apart from this ABG is present in a developing country like India with booming globalization.
This resulted in huge benefits for companies that were into ports. ABG Shipyard Limited

This resulted in banks providing ABG Shipyard with loans and lower interest rates. This
however made sense thanks to the potential that ABG had during the 2000s.

Another important aspect we have to make note of is the time and investment that goes into
building a ship. Depending on the size a ship may take up to 3 years to build with an
investment of up to Rs. 200 crores.

Background story of bank fraud

However, the 2008 crisis changed this. After the crash global economies were severely
affected. This resulted in companies around the world canceling orders that they had placed
with ABG Shipyard.

One may wonder how a few orders that were canceled would affect a hugely established
company. This is where the time taken to manufacture a ship comes into play.

Ships that were ordered months or even years ago were canceled. This resulted in ABG having
an inventory during a period when no one wanted more ships.

The company still had the option to compete for local tenders from the Indian Navy or the
Indian Coast Guard. But one must keep in mind that generally, these government defense
companies prioritize other government entities for their tenders.

Despite this, the company managed to rebound and earn its highest revenues ever in 2011-
12. Everything was downhill from here.

This is where the trouble began brewing for ABG Shipyard. The company began making losses.
just 2 years after this. This was when the company opted in for capital restructuring.

However, despite these efforts, the company failed to turn around and was declared an NPA
by the banks in 2016.
Brief of bank fraud

Between 2012 and 2017, ABG Shipyard Ltd (ABG SL), a Gujarat-based firm, purportedly
defrauded banks of Rs 22,842 crore total. This revelation has caused the Narendra Modi
government to come under fire, with the Opposition Congress accusing it of aiding in the
“loot”, given that the fraud occurred in a BJP-ruled state.

The scope and scale of the alleged fraud is staggering, but the crux of the deception, as the
Central Bureau of Investigation (CBI) is
discovering, was the novel way in which
the company apparently created a web
of transactions to cheat a consortium of
28 banks including State Bank of India
(SBI), IDBI and ICICI.

According to CBI sources, ABG SL took

loans from these banks and then
diverted them. It allegedly made
investments in overseas subsidiaries
from the loan amounts, bought assets in
the names of affiliated companies, and
also transferred money to several
related parties.

It is also alleged that the company,

whose account became a Non-
Performing Asset (NPA) in 2013, violated
terms of its arrangement for Corporate
Debt Restructuring (CDR) — a relief
mechanism in which lender banks either
reduce the interest rates on the loans or
increase the tenure of the repayment.

The brouhaha around the issue has been exacerbated by the fact that the case seems to be
beset with delays. The SBI identified the fraud in January 2019, but filed a complaint only in
November that year. A fresh, more comprehensive complaint was filed in August 2020, but
the CBI finally registered a case only on 7 February, and booked ABG SL and ABG International
Private Ltd.

The investigative agency has also booked ABG SL’s former chairman and managing director
Rishi Kamlesh Agarwal, former executive director Santhanam Muthaswamy, and directors
Ashwini Kumar, Sushil Kumar Agarwal, and Ravi Vimal Nevatia. Searches were also conducted
last Saturday at 13 premises of the accused in Surat, Bharuch, Mumbai, and Pune, leading to
the recovery of incriminating documents, sources said.

Timeline of events that contributed of fraud

The first complaint by the consortium of banks, led by SBI, was filed in November 2019, eight
months after the fraud was uncovered by the E&Y probe.

In a statement on 13 February, SBI said that ABG Shipyard has been banking with the firm
since 2001 and that “due to poor performance, the account became a NPA (non-performing
asset) on 30 November 2013” and that “several efforts were made to revive the company
operations.”

The statement further reads that an attempt to restructure the account was made in March
2014 but given the company's dwindling finances, the business could not be revised. “As the
restructuring failed, the account was classified as NPA in July 2016 with back dated effect
from 30/11/2013.

Though ICICI Bank was the lead lender in the consortium of banks ABG Shipyard did business
with, SBI was the one to lodge the complaint since it is the largest PSB lender. The first
complaint was filed with CBI in November 2019.

However, according to a Times of India report, this complaint was returned by the CBI, who
sought an internal investigation by the bank. The investigation concluded a year later and SBI
filed a second complaint in December 2020.

Now, since December 2020, the SBI, according to the newspaper report, has been doing its
own analysis to the extent of the fraud and formally acted on the complaint on 7 February,
2022.
Parties who were responsible in fraud
The Central Bureau of Investigation (CBI) has booked ABG Shipyard Ltd, along with its former
chairman and managing director Rishi Kamlesh Agarwal, executive director Santhanam
Muthaswamy, directors Ashwini Kumar, Sushil Kumar Agarwal and Ravi Vimal Nevetia and
another company ABG International Pvt Ltd. The alleged parties are said to have defrauded
the State Bank of India (SBI), and 27 other banks and lenders of more than Rs 22,842 crore.
CBI has also booked several others in relation to the ABG Shipyard fraud case.