Thread by @stocktalk_in

📕 HOW ROTOMAC SCAM WAS DONE

🔸Company: Rotomac Global Pvt. Ltd. (RGPL)

🔸Promoters:
- Vikram Kothari
- Sadhana Kothari (wife)
- Rahul Kothari (son)

🔸Size of Scam: ₹3,695 crore

🔸Type of Scam: Bank Loans (unpaid)

🔸Period of Scam: 2008-2014

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Before we understand the scam, we need to first understand an important concept that was used to execute the scam - Interest Rate Differential (IRD)

🔸What is IRD?
IRD is simply the difference between interest rates between two securities.
Eg: Loans, currencies, etc.

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An example of how IRD works:

1⃣ Get a loan of $10000 (₹7 lakh) from a US bank at 2% interest rate.

2⃣ Transfer the money to India (the tricky part).

3⃣ Give the same money as loan in India at 8% interest rate.

4⃣ IRD will be 6% in this case.

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In the example above, here's how you make money by using IRD:

🔸Interest paid (2%): ₹14,000
🔸Interest earned (8%): ₹56,000
🔹IRD = ₹42,000

Similar kind of transactions can be done for other instruments like foreign currencies, bonds, etc.

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🔸RGPL took loans from the following 7 nationalized banks:

Indian Overseas Bank: ₹771 cr

Bank of India: ₹754 cr

Union Bank of India: ₹459 cr

Bank of Baroda: ₹457 cr

Allahabad Bank: ₹330 cr

Oriental Bank: ₹97 cr

Bank of Maharashtra: ₹50 cr

TOTAL: ₹2919 cr

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🔸The company took these loans in small quantities of 20-30 crores over a period of 6 years (2008-2014).

🔸The purpose of these loans was said to be for executing import / export orders to foreign countries.

🔸Romotac is well known for their pens.

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🔸Interestingly, in one case the loan was taken for importing wheat from a company in Singapore!

🔸Later it was found that these were all fake orders and the money was just laundered via various countries.

🔸Forged documents were used to undertake the transactions.

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🔸No genuine business was conducted, instead IRD was used to make money.

🔸The company traded in foreign currency exchange market for IRD.

🔸The company was declared as an NPA.

🔸Total outstanding loan amount was:
₹3695 crore (₹2919 principal + ₹776 interest)

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🔸The scam broke out in early 2018 when the Nirav Modi-PNB scam was declared.

🔸A complaint was filed with CBI by Bank of Baroda just days after the PNB-Nirav Modi scam came out.

🔸Later all the 7 banks approached the ED to take up the case.

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🔸After the scam broke out, Mr. Vikram Kothari said, "I am an Indian. I am not running anywhere. Though my company is declared as an NPA but I am not a willful defaulter".

🔸CBI & ED conducted search raids at his residence and offices. The case was under NCLT.

THE END.

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