Some state-run lenders and private companies are under scanner of the corporate affairs ministry after allegations that these firms in collusion with bank officials misappropriated bank loans to generate cash among their subsidiaries and inflate enterprise value.

"There were allegations that bank officials are easing sanctioning norms for term loans and working capital loans to some private companies," said an official from the ministry of corporate affairs (MCA).

The finance ministry is investigating the role of some of the officials in leading public sector banks such as Indian Overseas Bank, Bank of India, Oriental Bank of Commerce and Bank of Baroda, the official said.

Companies or promoters used a part of these loans to purchase fixed assets such as land and then used them to borrow further loans by pledging them as collateral.

The remaining loan amount is shown used for purchasing moveable assets through fake invoices and the cash was shared between the borrower and conniving bank official, the official said.

"The entire loan amount will turn into bad assets and banks will have nothing much to recover," the official added. MCA is also likely to look into allegations that promoters are using their subsidiaries to help convert cash into equities at higher premiums, thereby multiplying their shared capital.

A finance ministry official confirmed that a probe was initiated, but said so far no substantial evidence has been found against any bank official. "We have asked MCA to investigate the issues relating to floating of a number of companies and issue of shares at unrealistic premiums," he said.

Another finance ministry official said most of the bankers have been given a clean chit. "The allegations were examined by the chief vigilance officer of these banks and no evidence was found," he said.  (Economic Times)