Bank Managers, Borrowers, and Middlemen Arrested in Gujarat Loan Fraud Case

Who verifies a loan application when documents seem too perfect to be real? That question is now haunting the country’s largest bank. In one of the most shocking internal frauds this year, the State Bank of India (SBI) has unearthed a ₹5.5 crore personal loan scam in two of its branches located in Dahod district, Gujarat.

The incident came to light after the bank's audit teams flagged irregularities in loan disbursals between 2021 and 2024. Police said the scam included fake salary slips, false job papers, and mistakes made on purpose by two ex-branch managers.

How Was the Scam Executed?

The scam involved 29 loans sanctioned using either manipulated or fully forged salary slips. These loans were issued over three years between September 2021 and June 2024 at SBI’s Station Road and Yadgar Chowk branches in Dahod.

SBI filed two separate complaints. Police have arrested two former managers, Gurmeet Singh Bedi and Manish Gavali, along with five borrowers and two middlemen. Police have arrested about 18 to 20 people so far, including two former bank managers, some borrowers, and middlemen. The exact number of accused may go up as the investigation continues.

Branch-Wise Distribution of Loans

Branch Name	Number of Loans	Period Covered	Borrower Type
Yadgar Chowk Branch	19	June 2022 – Feb 2024	Genuine employees with inflated slips
Station Road Branch	10	Sep 2021 – June 2024	Fictitious workers with fake IDs

Out of the total, 19 loans were disbursed at the Yadgar Chowk branch to government employees who inflated their income details to secure higher loan amounts. At the Station Road branch, 10 loans were sanctioned to people falsely claiming to be teachers or State Transport (ST) drivers.

Read More – Personal Loan Frauds on the Rise in 2025 – How to Identify & Avoid Scams

What the RBI Rulebook Says?

According to the Reserve Bank of India’s circular on fraud reporting, banks are required to notify the RBI about any fraud of ₹1 lakh or more using the FMR-1 format.

In cases involving amounts above ₹1 crore with staff complicity, the case must be escalated to the Central Bureau of Investigation (CBI). For frauds crossing ₹5 crore, banks are expected to involve the CBI’s Economic Offences Wing.

Given that this scam crosses the ₹5 crore threshold and includes insider involvement, SBI has reportedly initiated the required escalations, although the exact CBI handover date hasn’t been confirmed in public statements.

Misuse of Funds

In some cases, borrowers took large loans for things like house construction or supply purchases, but the actual use did not match their claims. For example, a borrower planned a multi-storey building but only completed part of it. These details are still under police review.

The police also uncovered that several supporting documents, such as experience letters and salary slips, were printed using shared templates, further suggesting third-party involvement.

Examples of Loan Misuse

Borrower Claim	Loan Amount (Approx.)	Actual Use Found
Four-storey house plan	₹2 crore	Two floors built
School supplies purchase	₹20 lakh	No goods received
Renovation of government quarters	₹25 lakh	No records available

This kind of behaviour raises questions on how internal bank verification teams missed basic red flags, such as inflated net salaries and mismatched PAN details.

Audit Findings and Internal Oversight

The scam was first detected during an internal audit conducted in early 2024. The audit flagged several loan accounts as NPAs (Non-Performing Assets) and reported inconsistencies in salary verification and background checks.

Also Read - Loan Fraud in the Digital Age: New Scams and Advanced Defences

A separate forensic team was later deployed to go through archived digital loan records. It was found that most of the suspicious loans were processed in batches over single-day approvals without any branch-level re-checks.

In some cases, the same guarantor had been used for multiple applicants, violating lending norms.

Audit Summary:

Audit Triggered By	Year Conducted	Findings Summary
NPA Reporting	2024	29 loans flagged as irregular
Forensic Investigation	2024 (Mid-Year)	Duplicate guarantors, fake slips
Staff Accountability Review	Pending	Under SBI HR’s disciplinary board

The timeline of irregularities is important here. It was not a single incident but rather a repeated process. This pattern suggests either active involvement or gross negligence within branch operations.

What's Next for Borrowers and Banks?

According to current RBI rules, any borrower labelled as fraudulent is ineligible for institutional finance for at least five years after full repayment. This has serious implications not just for the borrowers, but also for their family members and co-guarantors.

For banks, the scam has brought back discussions on the need for decentralised approval checks. Many experts believe that over-reliance on branch-level managers without cross-verification will only create more such loopholes.

SBI is expected to review its personal loan verification framework before the next audit cycle.

Going forward, both banks and borrowers may face stricter documentation checks, and salary verification may shift towards automated APIs linked to income tax and government HR portals.

The full investigation report is expected to be submitted to the banking regulator by October 2025. Until then, the Dahod case serves as a warning signal for both borrowers and bank staff.

Other News Pages
RBI Keeps Repo Rate Unchanged: Impact on Home Loans	RBI Finalises Co-Lending Norms: Banks/NBFCs Must Retain 10%	Finance Ministry: World Facing Trade Policy Disruptions	RBI MPC Decision: Big Shift for Gold Loan Borrowers & NBFCs
Home Loan Rates Drop Below 7.5%: Top Bank Offers	RBI VRRR Sees Muted Response as Overnight Rates Rise	Jio Financial to Raise ₹15,825 Crore via Preferential Issue	How India’s Credit Structure Weakens RBI Policy Impact
RBI Warns Lenders: Don’t Bypass Safeguards to Grow	AHFC Loans to Touch ₹2.5 Lakh Crore by FY28: ICRA	India’s Services Exports Rise 12% in June: RBI	Forex Reserves Hit $698.1 Billion After $2.7B Gain
ICICI Bank to Charge Aggregators for UPI: Impact on Users	RBI May Cut Repo Rate by 25 bps in August to Boost Credit	Gold Loan Demand Doubles in One Year, Govt Tells Lok Sabha	Kisan Credit Card: Get ₹5 Lakh Loan at 4% Interest (Guide)
Personal Loan Volumes Surge in FY25 but Growth Slows	RBI Bulletin: PSB Savings Deposit Rates Hit Record Lows	AIFF Finalises Pension & Benevolence Fund Accounts	RBI Caps Bank/NBFC Investment in AIFs at 20%
Retail Mortgage Loans by NBFCs, HFCs to Hit ₹20 Trillion by FY28	RBI May Review Liquidity Framework in August 2025	SBI Hit by ₹55 Crore Personal Loan Scam: Key Lessons	BOB, Canara Bank Write Off ₹54,000 Crore Loans for Safety