Scam Alert! ABG Shipyard Scam is the biggest fraud in Indian banking history, bigger than the Nirav Modi Fraud. With old techniques and some additional elements, ABG committed a scam with 28 banks worth Rs. 22,842 crores! Background ABG shipyard (ABG SL) is a part of the ABG Group of companies which was started in the year 1985. The company deals in manufacturing and repairing ships. The company has two shipyards located in Gujarat. After 1991, the company started growing at a very fast pace and its profits started increasing exponentially. Between 1990 and 2013, it delivered 165 ships of which 80% were for its international customers. After the 2008 crisis, the company claimed that there was a drastic fall in the purchase orders and hence, the inventory started piling up. Companies like ABG require massive funds for their operations; however, a reduction in the sale made it difficult for them to run their operations. These reasons compelled the company to take loans. From 2005 to 2010, the company took huge loans from various banks. Of all the banks, ICICI Bank had the maximum loan exposure of Rs. 7,089 crores followed by IDBI Bank, SBI, Bank of Baroda, and Exim Bank of India. One of the shocking facts is that between 2006-2010, the company’s net profit was not too high. It was approximately 130 to 150 crores. Despite this fact, the company was offered thousands of crores of loans against the mortgaged assets and the promoters’ guarantee. The Decline In 2013-14, the company underwent a debt restructuring (a relief mechanism in which lender banks either reduce the interest rates on the loans or increase the tenure of the repayment) process citing various reasons – the cancellation of new ship orders, high borrowing cost, low-capacity utilization, and expiry of the Centre’s shipbuilding subsidy scheme in 2007. On July 30, 2016, the company was declared a non-performing asset w.e.f. November 2013 because it started defaulting on its loans. Ernst and Young LLP was appointed to conduct a forensic audit of ABG SL. The audit found that fraud had taken place between 2012 and 2017. The loans taken by ABG SL were found to be diverted to ABG group’s other subsidiaries. This technique of transferring the funds to related parties is called ‘Round Tripping’. The funds were misused and there was a criminal breach of trust, intending to make profits at the cost of the banks. The fraud was identified in January 2019, however, the first complaint to CBI was not made until November 2019 by SBI. The second report was filed in December 2020. CBI registered the case against ABG Shipyard and ABG group on 7th February 2022. The increasing rate of financial scams questions the efficiency of India's banking system. ABG SL showed a drastic growth in gross profit, however, the cash generated from its operating activities remained negative since 2013. Secondly, the fixed assets owned by the company were less than Rs 1000 crores. Despite these factors, the banks granted a huge amount of loans to the company. What is your opinion on this scam? Tell us in the comment section below… Thank you.
Thanks for articulating the whole case. Secondly, the banking system hasn't been so weak but big players use the loop hole for their benefits and it harms to a normal customer and bank, which can be minimized with few policies.
ReplyDeleteThe whole scam has been explained really well. The fact that this scam went for so long shows we need to make a lot of improvements in the banking system of the country. The final burden of such NPAs has to be faced by retail customers
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