March 12, 2018 / 11:02 AM / 2 years ago

UPDATE 2-India's Andhra Bank sinks to 15-year low amid fraud probe involving ex-director

* Agencies accuse former bank director, Sterling execs of fraud

* About 54 bln rupees of loans to Sterling cos have become NPL-CBI

* Shares cut losses in late trade, lowest close since Aug. 2003 (Updates with one arrest in separate fraud case)

By Devidutta Tripathy and Arnab Paul

MUMBAI, March 12 (Reuters) - India’s Andhra Bank, already hurt by an industry-wide spillover of a huge alleged fraud at another lender, saw its shares slide to a 15-year low on Monday after authorities filed new complaints against a former director in a separate long-running case.

The Enforcement Directorate, which fights financial crime, said on Friday it had filed additional charges against Anup Garg, a former director of state-run Andhra Bank, in connection with a more than 50 billion rupee ($769 million) fraud case involving Sterling Biotech that was filed last year.

Authorities have accused senior executives of Sterling and Garg of “criminal conspiracy” and falsifying accounts to allow Sterling to raise much larger loans from Andhra Bank and other lenders than it would have been able to otherwise.

India's federal police, the Central Bureau of Investigation (CBI), had filed a complaint in the case last October.

Law enforcement agencies have accused Garg, a chartered accountant who was on the bank’s board for three years until October 2009, of receiving bribes from the Sterling executives between 2008 and 2009.

Sterling group companies owed a total 53.83 billion rupees to banks as of end-2016, according to the CBI. All the loans have turned non-performing, the agency said.

In a stock exchange filing after the close of trading on Monday, Andhra Bank, headquartered in Hyderabad, said it was the lead bank for two Sterling group companies to which its total exposure is about 11.5 billion rupees.

The bank’s exposure to the Sterling group companies has been classed as non-performing since March 2015, Andhra Bank said, adding it reported last December the accounts as fraud to the Reserve Bank of India and has also filed a police complaint.

Sterling Biotech executives could not be reached for comment when contacted on the board line of the company’s Mumbai office. Garg could also not be reached for comment.

A $2 billion fraud disclosed last month in second-biggest state-run lender Punjab National Bank has shaken the country’s financial sector at a time when Indian banks are battling a near-record $146 billion of soured assets.

After the PNB fraud case, the government has ordered banks to probe all non-performing loans of more than 500 million rupees to see if there was any sign of any fraud.

In a separate case of alleged fraud, the CBI on Monday arrested Hasmukh Shah, who they said was a former director and authorised signatory of Forever Precious Jewellery and Diamonds Ltd. The agency said late on Monday it would present Shah before a Mumbai court on Tuesday.

Neither Shah nor Forever Precious Jewellery could immediately be reached for comment.

Forever and group company Winsome Diamonds have been accused by authorities of defaulting on credit given by several banks. The CBI last year registered multiple cases against Winsome, while the National Company Law Tribunal last month ordered the start of bankruptcy resolution proceedings against Winsome and Forever.

Andhra Bank shares closed 6.7 percent lower at 35.95 rupees, their lowest level since August 2003. The stock fell as much as 17.1 percent during trade.

Sterling Biotech fell 3.5 percent, its maximum daily limit, to 2.75 rupees ($0.0423). ($1 = 64.9950 Indian rupees) (Reporting by Devidutta Tripathy and Arnab Paul; Additional reporting by Krishna N. Das in New Delhi Editing by Euan Rocha, Muralikumar Anantharaman and Adrian Croft)

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