🕵️ How KPMG Unearthed A Rs. 34,000 Crore Fraud
🕵️ How KPMG Unearthed A Rs. 34,000 Crore Fraud
A Rs. 34,600 crore scam was hiding as financial irregularities until a media agency and a Big Four company helped uncover it. Here's how.
India is one of the most scammed countries in the world.
Every other day we hear reports of some fraud or the other.
So much so that yesterday we covered a new scam (catch up here) that some NBFCs were running.
And today we are here with yet another scam story: the story of India's biggest bank frauds, also run by an NBFC.
So, let's uncover how Dewan Housing Finance Ltd. looted over Rs. 34,614 crores from 17 banks.
👀 Chapter 1: The Scam
DHFL came into existence in 1984 with the tagline 'changing rules, changing lives'.
The headline was apt: DHFL would be bending many rules set by authorities and changing the lives of many bankers for the worse.
But we'll come to that part in a bit.
Back in 1984, DHFL was just a simple NBFC with humble beginnings.
Slowly and steadily, the real estate financing company became India's third largest mortgage lender.
And as the company grew, the ambitions of its promoters also grew.
By 2010, Kapil and Dheeraj Wadhawan were no longer interested in just taking money from banks and mutual funds and loaning it to their customers.
They wanted this money for themselves.
Hence began a scam so monumental that it involved 17 banks, over 75 businessmen and associates and even two gangsters associated with none other than Dawood Ibrahim.
So, they kept taking money from banks as usual. In fact, they borrowed as much as Rs. 42,871.42 crores during 2010-2018!
But when it came to returning these loans, the Wadhawan brothers claimed that DHLF was seeing a record number of non-performing assets and couldn't return this money.
This happened around the time that IL&FS, another NBFC, crashed. So, the lie was plausible. NBFCs were a risky investment.
But this lie was short-lived: In 2019, a report by Cobrapost claimed that DHFL wasn't a failure, it was a scam. .
Now, this obviously got everyone's attention, especially the banks that had loaned money to DHFL.
And while DHFL claimed this was fake news, banks appointed KPMG to investigate the NBFC.
🧐 Chapter 2: The Reveal
KPMG auditors were in for the time of their lives. These CAs got a close look into one of the biggest scams in the world and boy, were they in for a surprise!
Here's what they discovered:
KPMG conducted a detailed study of Rs. 15,000 crores loaned to DHFL. Out of this, around Rs. 10,000 crores were not given out as loans, but were invested in mutual funds.
The rest of the Rs. 34,000 crores was given out as loans to shell companies belonging to either the promoters and directors or their relatives. Loans worth Rs. 14,000 crores were given to 25 companies that had less than Rs. 1 lakh of profits. These were shell companies.
This report sent the world into shock and Union Bank immediately filed a complaint against DHFL.
And since the complaint back in 2020, more and more juicy details have been coming out about the scam.
In total, 87 shell companies and 2,60,000 fictitious borrowers (using a software) were created by DHFL promoters.
They were also accused of giving loans to companies reportedly belonging to Iqbal Memon and Chota Shakeel, gangsters allegedly connected to Dawood Ibrahim.
And that's not all. Yes Bank was also involved in this mess.
Yes Bank invested Rs. 4,727 crores in DHFL bonds and gave Rs. 750 crores worth of loans to it. In return, DHFL gave loans worth Rs. 600 crores to Do It Urban Ventures, a firm belonging to Yes Bank's founder's family.
There's much more to this case with new information released every other day.
But our point was to highlight the amount of damage just one NBFC can cause.
And it is our auditors and our regulators who can prevent this from happening.
But too often, these superheroes reach too late to the scene after the crime has been committed.
All they can do is try to prevent more such cases in the future. What do you think can be done to prevent such scams in the first place?
⚡ In a line: DHFL tried to pull a fast one on banks and us but thankfully our superheroes the media and auditors saved us.
💡Quick question: Do you think scams can be prevented or stopped completely?
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