The Reserve Bank of India has called for a “forensic audit” (investigative audit) of Kolkata-based Prime Impex and Prime Pulses Pvt Ltd, importers and traders of pulses. Initial investigations by banks have, prima facie , shown irregularities and misuse of letters of credit by the two companies by colluding with suppliers and committing an alleged fraud to the tune of Rs 500 crore.

Six banks — Bank of India, Indian Overseas Bank, Oriental Bank of Commerce, IDBI, Development Credit Bank and YES Bank — have been affected by the irregularities.

According to sources close to the development, both the companies had “excellent financial track record” and had good rating from global rating agency, Fitch. Therefore, banks from time to time enhanced the L/C limit.

L/C limit raised

“At one point Prime Impex seemed to have breached the L/C limit and, therefore, one bank stopped the payment which had snapped the chain of this kite-flying-operation,” said the source.

Banks had roped in BDO India, formerly BDO Haribhakti Consulting Private Ltd, to do the initial investigation and found irregularities in letters of credit, and in many cases there was no genuine movement of goods.

However, the full extent of how the fraud was perpetrated will be known only when a forensic audit is done, said the source.

These companies have told banks that they have lost money in the forex and derivative markets and owing to fluctuations in the pulses market and were, therefore, unable to pay. The company did not respond to an email sent by Business Line .

In April 2011, a press release from Fitch said it downgraded the rating of banks' Rs 115-crore L/C limit to Prime Pulses, noting that the banks had informed Fitch that the company has defaulted on its L/C in the previous quarter

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