In a development that has sent shock waves through the banking industry, former State Bank chairman Pratip Chaudhuri was arrested in an alleged loan scam case related to a hotel in Jaisalmer, Rajasthan.

Chaudhuri, the SBI chief between April 2011 and September 2013 is now an independent director on the boards of CESC, Firstsource, Spencer’s Retail, Cosmo Films, Visa Steel and Muthoot Finance.

He was reportedly arrested by the Jaisalmer Sadar police from his home in the national capital after his bail application was rejected by a magistrate’s court in Jaisalmer.

The case relates to the properties owned by the Godawan group which had taken a loan from the SBI in 2008 to build a hotel.

However, the account became a non-performing asset (NPA) in June 2010 after which SBI took steps to recover the money. It sold properties belonging to the group to Alchemist Asset Reconstruction Company during Chaudhuri’s tenure at the bank.

The ARC is sponsored by Alok Dhir, a chartered accountant and an NBFC called DMI Finance Pvt Ltd.

The Godawan group then approached the courts alleging that the market value of the properties was much higher at Rs 160 crore. Their value at present is reportedly put at Rs 200 crore.

Chaudhuri had joined the board of directors of Alchemist following his retirement from SBI.

In a statement issued on Monday, SBI said “Garh Rajwada” was the hotel project in Jaisalmer that was financed by the lender in 2007. The project remained incomplete for over three years and the key promoter passed away in April 2010. The account slipped into NPA in June 2010 and various steps taken by the bank for the completion of the project as well as the recovery of its dues did not yield the desired results.

SBI disclosed that as part of its recovery efforts, the dues were assigned to an ARC for recovery in March 2014.

SBI pointed out the sale to the ARC was done through a laid down process at the bank and the assignment to ARC was completed in March 2014.