Taxpayer burden rises as Bank of Baroda settles NMC claims despite compliance failures

In July 2026, Bank of Baroda (BoB) agreed to pay $600 million (about Rs5,700 crore) to settle claims brought by the administrators of NMC Health. The bank had been warned by its own compliance staff as early as 2016 that funds were being ‘round-tripped’ through accounts linked to the Abu Dhabi hospital group, according to closing submissions filed before the Abu Dhabi Global Market (ADGM) courts and other documents reviewed.

Round-tripping refers to money being sent out and then routed back, creating a false impression of business activity. The bank continued to process such transfers and extended fresh facilities to NMC entities for more than three years after the first warnings, the documents show.

When the lender disclosed the settlement to the stock exchanges on 2 July, it said the payment carried no admission of liability or wrongdoing and was intended to avoid prolonged litigation, uncertainty and cost. The administrators had pursued the bank in Abu Dhabi and London on claims of close to $5.4 billion, alleging that failures in its anti-money laundering (AML) and know-your-customer (KYC) obligations had facilitated the fraud that brought down NMC in 2020. On the bourse, BoB’s shares fell more than 7 per cent over the next two sessions.

The allegations in the submissions were contested by the bank at trial and have not been tested in a judgment. The documents matter beyond Abu Dhabi. B.R. Shetty, who founded NMC, remains locked in litigation with BoB in India over personal guarantees that the bank says he gave and which he says he never signed.

The bank’s transaction monitoring systems raised more than a hundred AML alerts on NMC group accounts and none led to a blocked transaction, an escalation or a report to any authority, according to people familiar with the matter. In 2016, an officer at the bank’s zonal office, acting at the request of a correspondent bank, asked the Abu Dhabi branch to check customer records and alerts on seven named accounts. All seven, the branch replied, were NMC-related.

In July that year, responsibility for reviewing AML alerts moved from the branch to the bank’s compliance department in the UAE. Compliance officers almost immediately began writing to the branch about accounts that dealt only with NMC entities, recorded turnover far above what had been declared at account opening and showed money moving in circles. “There are round-tripping transactions in the account as the major debits and credits are going to NMC group accounts”, affirmed an e-mail of September 2016, concerning an NMC Healthcare account. On 22 November 2016, a compliance e-mail flagging round-tripping in the accounts of several supplier entities was forwarded by a branch official to an NMC employee, two months before the bank filed a suspicious transaction report on one of those entities and froze its account.

Suspicious activity

One of the reasons this activity was suspicious was precisely because BoB was operating the accounts on both sides of the transactions. It was perfectly obvious to BoB’s Compliance team that they would have known that the money was coming in from NMC and going out to NMC. BoB was uniquely positioned to spot this round-tripping in the accounts and indeed it did spot it. Closing submissions of NMC’s administrators, Chapter 6 (BoB) Regulators, had raised concerns too. In January 2015, the Reserve Bank of India wrote to the bank about ‘several weaknesses/shortcomings in the KYC/AML processes’ at its UAE operations, according to the submissions. Reviews by outside firms between 2016 and 2019 reported missing account-opening documents and absent enhanced due diligence on higher-risk customers.

The lending did not stop. As late as November 2018, the bank disbursed a fresh AED367 million ($100 million) term loan to the group. The most serious allegations were recorded in early 2019, when Ernst & Young (EY) was auditing NMC’s accounts for 2018. At NMC’s request, the Abu Dhabi branch prepared 15 separate balance confirmation letters on NMC Healthcare’s facilities and handed them to the company for delivery to EY, instead of sending them to the auditor directly. Four of them never reached EY. Together, they recorded liabilities of about AED980 million – roughly $267 million.

In mid-February, the bank’s managing director received an anonymous e-mail warning that a large UAE group to which the bank was heavily exposed was in distress, with manipulated financials and largely undisclosed borrowings. The administrators allege that senior management took it seriously.

On 2 March, EY’s incomplete set of confirmations reached the branch officer who had signed them. Two days later, a letter on the bank’s letterhead arrived at EY, stating that the additional liabilities had been reported in error. The signature on that letter, attributed to the same officer, was forged, and the officer knew it, the administrators allege. The bank did not inform the auditor of the forgery, nor did it report the matter to regulators.

Within weeks, the NMC group repaid virtually all its borrowing from the bank. The facilities recorded in the four withheld letters, then totalling about AED992.5 million, were closed, including the $100 million term loan disbursed only four months earlier. By then, the administrators allege, the bank knew NMC’ s finance function was hiding borrowings from its auditor, and it kept that to itself.

BoB told the court that the term loan was repaid because its exposure to the Shetty group had breached limits set by the UAE central bank. The administrators rejected that account in blunt terms. BoB denies this, claiming that the repayment of the AED367 million/$100 million term loan was due to a need to reduce its exposure to the Shetty Group under CBUAE exposure limits. The claimant’s case is that this was a recent fabrication coordinated at the behest of BoB.

Systemic gift-giving

Closing submissions of NMC’s administrators, Chapter 6 (Baroda), noted that there was no contemporaneous record of any communication on the exposure cap. What the record did contain were minutes of a meeting of the bank’s management committee on 7 May 2019, which recorded that $500 million had been recovered from the group over the previous three months. The minutes made no mention of a regulatory cap.

The submissions also described what they called systematic gift-giving by NMC’s finance team to the Bank’s Abu Dhabi branch staff, though the bank’s own circulars barred employees from accepting gifts from customers.

On 7 January 2019, an NMC finance employee shared a list of 23 branch employees, sorted by seniority. That evening, he sent photographs of a MacBook Pro captioned as being bought for the branch’s assistant general manager, four iPad Pros for juniors, and five iPhone XS Max handsets for Indian officers, along with a purchase receipt for AED50,662. In February 2019, messages between NMC’s executives discussed gifting a luxury watch for a senior regional executive of the bank. Bank witnesses denied receiving any gifts. One former head of operations admitted receiving an iPad from NMC when he left the branch in 2016.

The independence of judgment that proper banking requires had been compromised. The recipients of gifts from the NMC Group were not well-placed to exercise rigorous independent scrutiny of the NMC Group’s instructions. Over the same years, the bank extended facilities running into thousands of crores of rupees to the group without tangible collateral, according to documents reviewed. The Karnataka High Court, in an order in the guarantee litigation, recorded that, when it asked what security backed so large an exposure, no particulars of tangible security were forthcoming and described such unsecured lending by public sector banks as a matter of concern.

After NMC’s collapse, BoB filed fraud monitoring returns with the RBI. The returns named UAE Exchange Centre as the perpetrator and reported a loss to the bank of several hundred crores of rupees. When asked whether staff were involved and/or whether the controlling office could have detected the fraud, the answer was ‘No’. Also, they recorded no staff-side action and listed the collateral as ‘Nil’. They did not mention the 2016 compliance alerts either.

The bank carried the NMC claims only as a contingent liability, having told shareholders it had a strong chance of defending them and made no provision before settling. BoB’s position throughout has been that it was a lender defrauded by its customer. The $600 million settlement is many times the loss the bank reported to the RBI. And the money did not flow to the bank as a victim’s recovery. It flowed from the bank to the administrators now representing the very companies it named as perpetrators. Apart from the amount, the terms remain confidential.

The money the bank lent to the group, meanwhile, is unlikely to be recovered, since every borrower is in administration or liquidation, leaving a public sector bank to absorb a combined cost running into several thousand crores of rupees. For a state-owned lender, the bill ultimately falls on the exchequer. BoB has paid about R5,700 crore to settle claims that it ignored its own alerts and stayed silent on a forged letter, and it must absorb several thousand crores more lent to the group without tangible security. Every rupee of that loss erodes a public sector bank’s capital and, with it, the value of the taxpayer’s stake. Yet, the bank told the regulator no staff were involved.

The questions now extend beyond Abu Dhabi. Who at the bank reviewed the 2016 compliance alerts and why were fresh loans sanctioned after them? Why did the fraud returns clear every employee? Why was a settlement of this size never provided for? For taxpayers, who ultimately own the bank, those answers matter as much as the money.