Police arrest four over alleged $39 mln bank fraud

MUMBAI (Reuters) - Police in Mumbai have arrested four people alleged to have siphoned off money from accounts held in multiple banks, mostly state-owned, in the latest scandal involving public sector lenders in Asia's third-largest economy.

The economic offence wing of the Mumbai police is looking for six more suspects, a deputy police commissioner told reporters on Thursday, adding that the alleged fraudulent withdrawals total about 2.38 billion rupees ($39.3 million).

The case comes hard on the heels of an alleged more than 4 billion rupee fraud at branches of state lenders Dena Bank and Oriental Bank of Commerce , which authorities are investigating separately.

In another incident, the head of state-run Syndicate Bank was arrested this month over allegations that he was seeking bribes to favour debtors.

State-run banks have in recent years reported bad loans growing faster than their private sector peers, while in some cases there have been allegations of corruption.

In the latest case, funds from eight accounts held in branches of seven state-run banks - Bank of India , Punjab National Bank , Vijaya Bank , State Bank of Bikaner and Jaipur , UCO Bank , Central Bank of India and Dena Bank - were withdrawn illegally, the police official said.

There was one case of fraud at a Mumbai branch of private sector lender Dhanlaxmi Bank , the official said.

Shares in Dhanlaxmi had fallen 4.7 percent on earlier local media reports that named the bank as one of those involved in the case.

No bank executives have yet been named in relation to the alleged fraud.

Dhanlaxmi Bank Chief Executive P.G. Jayakumar declined to comment, as did a spokesman for Punjab National Bank.

A Dena Bank spokesman said the latest case related to the fraud previously reported by the bank, without elaborating. Dena Bank said last week that 2.23 billion rupees had been "surreptitiously transferred" out of the bank.

The other state-run lenders could not be reached immediately for comment.

($1 = 60.4950 rupee)

(Reporting by Devidutta Tripathy; Editing by David Goodman)