Ravindra Marathe was named Bank of Maharashtra's CEO in September 2016.Mumbai: The chief executive of state-run Bank of Maharashtra sanctioned a Rs 10 crore ($1.5 million) loan to a real estate firm which had defaulted on payments to investors, according to a court document on the latest probe into loan fraud at Indian banks.

Police arrested the bank's chief executive Ravindra Marathe, executive director Rajendra Gupta and a former chairman on Wednesday, accusing them of misusing their authority in making loans to D.S.

Kulkarni Developers Ltd (DSKDL).The executives were the most senior to face arrest in a spate of investigations Indian law enforcement agencies have launched against state-run banks following a more than $2 billion fraud unearthed at Punjab National Bank earlier this year."Accused Gupta and Marathe illegally sanctioned and disbursed Rs 10-crore loan to DSKDL on April 12, 2017," the police said in a document filed in a court in the western city of Pune, where the bank and the developer are based.Reuters has reviewed a copy of the document.Marathe and Gupta have not commented on the allegations or their arrests.The court ordered the two executives and four others to be remanded in custody until June 27 for further questioning.Bank of Maharashtra, a mid-sized lender, said on Wednesday it had a total outstanding exposure of Rs 94.52 crore to the developer, adding the loans were fully backed by collateral.The bank also said all loans made to the developer were per the bank's lending rules, and that the bank was auctioning some properties to recover dues.D.S.

Kulkarni Developers, one of the biggest property firms in Pune city, has been accused of defaulting on deposits it raised from individuals promising them higher returns.More than 1,200 cheques issued by the developer to depositors bounced, according to the document.The police document put the total amount the developer owes to depositors, banks and others at Rs 2,043 crore ($299.5 million).Marathe was named Bank of Maharashtra's CEO in September 2016.

His predecessor Sushil Muhnot was also arrested on Wednesday.Muhnot has also not commented on the arrest.

DSKDL did not respond to Reuters calls seeking comment.Authorities have stepped up scrutiny of the state banking sector in the wake of the fraud at PNB, the second-largest state-run lender.Current and former officials at other state lenders, including IDBI Bank, Indian Bank, Syndicate Bank and Canara Bank are being investigated over alleged loan fraud cases. © Thomson Reuters 2018