How BoB branches gave out gold loans without collateral

Gold loans without gold. Processing fees paid by branch. And repayments backdated to hoodwink the system.

- Shayan Ghosh

This was the bizarre way in which employees at a clutch of Bank of Baroda (BoB) branches disbursed fake gold loans last year to meet stiff targets, four employees aware of the matter said, breaching regulatory guidelines and potentially risking depositors’ money.

The breaches were primarily at branches with so-called gold loan shoppes, or private enclosures to serve gold loan customers. A BoB statement in August last year showed the bank had 1,238 such enclosures.

Some BoB staffers in southern India executed the scheme in cahoots with friendly customers, the people cited above said. The branch would sanction a gold loan and credit the money to the customer’s account, without any collateral. After a while, the money would be credited back to the bank, like a normal loan repayment. To make sure that the customer does not use up the money, a lien would be created against it. A lien is akin to a block on a specific sum of money on an account. This would help the employees meet their target, without any real loan being made or repaid.

What about the loan’s processing fees and interest? According to the employees cited above, the branch would pay the fees from its own expense account, which is meant for internal expenses.