The chairman and three directors of the Prudential Cooperative Urban Bank, the oldest and largest urban coop bank in Andhra Pradesh, were arrested on Saturday for cheating and criminal conspiracy to defraud the bank.

Giving the details at a news conference on Saturday evening, Additional Director-General of Police M L Kumawat said those arrested were bank chairman Boorugu Muralidhar and directors Vittal Rao, C B Nair and P R Mohan.

The police have launched a manhunt for seven others -- vice-chairman Madhusudan, CEO B Pullaiah, and directors C M Prakash Rao, A M Krishna Kumar, P Ramakrishna Rao, Bal Reddy and Dundoo Vinod Kumar.

A reward had been announced for those giving information leading to the arrest of these persons. Police have seized their passports and alerted airports, railway and bus stations.

Kumawat said the bank reported deposits of Rs 5.32 billion (Rs 532.06 crore) and loans and advances of Rs 4.51 billion (Rs 451.71 crore) as of March 31, 2002.

While the Bank had reported non-performing assets of 30.8 per cent (Rs 139.05 crore) as against the norm of just five per cent, the RBI found that the NPA were actually 66.5 per cent, amounting to Rs three billion (Rs 300.22 crore).

The Capital to Risk Assets ratio as reported by the bank as 1.7 per cent while the RBI found it to be minus 22.6 per cent.

RBI found that the directors themselves recommended most of the proposals for loans and advances, which the bank sanctioned without any sort of appraisal.

The bank sanctioned loans to risky sectors such as commercial construction companies.

Most of the advances were granted in the form of overdrafts, and not as loans. The bank was levied penal interest of Rs 2.12 billion (Rs 212 crore) for default in Statutory Lending Ration.

The bank reportedly misled the RBI by submitting false statements about NPAs, CRRs, loans and advances. The rate of interest on the term deposits was 14 per cent, which was four to five per cent higher than other commercial banks.

Due to poor SLR and CRR, the liquidity position of the bank was extremely critical.

Among other things, the RBI found that no reasons were cited in the valuation reports of landed properties.

When a firm defaulted in repayment of a loan, it was granted to the same firm under another name. The end-use of the funds was never ascertained.

The RBI, in its report, said even the CEO contributed to the systematic deterioration of the financial health of the bank.

CEO B Pullaiah and his wife Kantamma enjoyed an overdraft facility for unspecified purposes. Pullaiah took Rs six million (Rs 60 lakh) as OD while his wife availed of Rs 2.2 billion (Rs 22.33 lakh), which were listed as NPA.

The bank, which was established in 1920, has 20 branches and a staff of 400, including 100 officers.

The RBI has classified the bank as sick due to its poor functioning.

The Criminal Investigation Department has registered cases against the bank's chairman, chief executive officer and 10 directors under sections 120 B (criminal conspiracy), 420 (cheating), 409 (criminal breach of trust) and 477A (falsification of accounts) of the Indian Penal Code and Section 5 of the AP Protection of Depositors Act.