Govt probing alleged fraud in two state-run bank branches

MUMBAI (Reuters) - India is investigating the alleged misappropriation of more than 4 billion rupees ($66 million) from branches of the state-run Dena Bank Ltd and Oriental Bank of Commerce Ltd in Mumbai, a senior government official said.

The alleged embezzlement comes weeks after the head of another state-run lender, Syndicate Bank Ltd , was detained over allegations he had sought bribes to favour debtors.

G.S. Sandhu, a top finance ministry official, told reporters on Wednesday that a forensic audit of two Dena and Oriental Bank branches in Mumbai was being conducted.

"Investigations are on. Based on the investigations, further action will be taken," Sandhu told reporters in Mumbai. "Those persons who are responsible, they are being taken to task," he said, calling the incidents "very individual and specific".

A committee appointed by the Reserve Bank of India (RBI) in May called corruption in state banks a major "public policy concern" and recommended the federal government cut its stake in these banks to below 50 percent.

Dena Bank said in a regulatory filing that about 2.23 billion rupees were "surreptitiously transferred out" of the bank by the creation of a fake overdraft facility.

The lender took a provision of 542.9 million rupees last quarter because of the "fraud" and will take the remainder during the current fiscal year, it said.

Dena has suspended the branch manager and transferred the staff of the branch, it said.

In a separate filing, Oriental Bank reported the "surreptitious transfer" of about 1.8 billion rupees from one of its Mumbai branches in February, adding it had reported the incident to the central bank and the finance ministry.

Dena Bank shares fell 5 percent on Wednesday, while Oriental Bank shares closed 3.6 percent lower in a Mumbai market that was down 0.3 percent.

($1 = 60.6100 rupees)

(Reporting by Devidutta Tripathy; editing by David Clarke)