The Orissa High Court has directed CBI to investigate the alleged Rs 31,000-crore mark-to-market (MTM) gains of leading banks from exotic foreign exchange derivative contracts that were made at the expense of customers. The investigating agency will now launch a full-fledged inquiry into 22 banks?they include State Bank of India, HDFC Bank, HSBC Bank, Citibank, ICICI Bank, ABN Amro, Axis Bank and Barclays?based on gross violation of the Foreign Exchange Management Act (Fema).

The high court judgement delivered on December 24 comes after CBI filed a preliminary report on the issue in November. The court has now noted that ?commission of offences of cheating, criminal conspiracy and fraud cannot be ruled out (in this case)?. ?The instant matter is (one of) national interest. If the allegations are found to be true, then the CBI would be busting a large financial scam affecting the economy of the country,? the court observed.

In its report to the court, CBI had gathered data from RBI that 11 banks had unrealised dues from customers to the tune of Rs 755.45 crore from between April 2007 and December 2008. This was primarily due to the customers failing to meet MTM losses.

The gross MTM losses to the customers of 22 banks active in the deri-vatives business were Rs 31,719 crore between 2006 and 2008. During this period, corporates and exporters across sectors entered into fancy derivative agreements with nationalised as well as private banks to safeguard their foreign exchange risk.

According to RBI, this was not a systemic issue as banks failed to verify the underlying of a derivation transaction.

According to RBI findings, of the unrealised dues, Rs 329.53 crore is under litigation, Rs 58.32 crore is being recovered in instalments, Rs 22.83 crore is disputed while banks have written off Rs 203.79 crore.

An interdepartmental group of RBI had earlier found several Fema violations by some banks in India and the regulator is considering action against them.

CBI conducted its investigations on directions from the high court, which was hearing a petition by Pravanjan Patra, alleging Fema violations in selling forex derivatives products to companies, importers and exporters.

The petition had alleged massive fraud on the part of several banks and pegged the amount involved at Rs 25 lakh crore.