June 20, 2018 / 5:40 PM / 6 months ago

UPDATE 1-Indian police arrest CEO, director of state-run bank over loans

(Adds bank comment)

MUMBAI, June 20 (Reuters) - Indian police arrested the chief executive and an executive director of state-run Bank of Maharashtra on Wednesday, accusing them of misusing their authority in making loans to a property developer.

Bank of Maharashtra Chief Executive Officer Ravindra Marathe and an executive director, Rajendra Gupta, were among six people arrested, police said.

Among the others arrested were Sushil Muhnot, a former chairman and managing director of the bank, a manager at the bank, and a chartered accountant and an employee of D.S. Kulkarni Developers Ltd (DSKDL), police said.

“Bank officers colluded with DSKDL by misusing their power and authority with dishonest and fraudulent intention,” the police said in a statement.

The bank said in a statement on Wednesday the loans were sanctioned to DSKDL as per the bank’s lending norms. The bank’s statement said it was in the process of recovering the loans. It also said its total outstanding exposure to the DSKDL was 945.2 million Indian rupees ($13.89 million).

In a filing to the Indian stock exchange, the bank confirmed the arrest of Marathe and Gupta, saying they would be in police custody until June 27. It did not comment on arrest of Munhot, who could not be reached for comment.

DSKDL did not immediately respond to Reuters calls seeking comment.

Authorities have stepped up scrutiny of the state banking sector after a more than $2 billion fraud unearthed in Punjab National Bank, the second-largest state-run lender, this year.

Current and former officials at some other state lenders, including IDBI Bank, Indian Bank, Syndicate Bank and Canara Bank have been investigated over alleged loan fraud cases.

State-run banks have reported 8,670 cases of fraudulent loans totalling 612.6 billion rupees over five financial years up to March 31, 2017, central bank data shows. ($1 = 68.0550 Indian rupees) (Reporting by Rajendra Jadhav and Devidutta Tripathy Editing by Sanjeev Miglani, Darren Schuettler and Jane Merriman)

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