Lessons from the Bank of Baroda–NMC Settlement: The Blurring Line Between Lending and Enabling

A US$600 million settlement by Bank of Baroda over its role in the collapse of NMC Health has brought renewed attention to a question that is reshaping global banking: when does a lender become accountable not merely for the loans it extends, but for the financial flows it enables?

Using one of the Middle East’s biggest corporate fraud cases—which continues to involve NMC founder B.R. Shetty and other defendants—as its backdrop, Ramesh Krishnan’s analysis examines how compliance, governance, and conduct risk are redefining the responsibilities of banks in the modern financial system.

Ordinarily, a bank sues a defaulting borrower. In the Bank of Baroda–NMC litigation, the reverse happened. The insolvency administrators of the borrower sued the bank, and the bank has now agreed to pay US$600 million to settle the proceedings without admission of liability. The unravelling, in 2020, of the collapse of NMC Health, the Abu Dhabi-based healthcare group, remains one of the region’s largest corporate frauds. The settlement, paid through the bank’s Abu Dhabi branch, closes proceedings before the Abu Dhabi Global Market (ADGM) Court of First Instance and the High Court of Justice in England and Wales, where a trial had been under way since March 23, 2026.

Bank of Baroda was one of three defendants named in a $5.4 billion claim brought by Alvarez & Marsal, the joint administrators of NMC Health, alongside founder Dr B.R. Shetty and former chief executive Prasanth Manghat. The administrators alleged that the bank facilitated fictitious financing arrangements, processing credit against fabricated invoices that helped conceal NMC’s true debt position. Bank of Baroda has denied the allegation.

While the settlement was reached to bring prolonged litigation and uncertainty to a conclusion, the scale of the payment tells its own commercial story. Set against the $5.4 billion claimed, the $600 million payout covers roughly a tenth of the loss alleged. Crucially, this settlement figure is more than double the bank’s original credit exposure of approximately $253 million reported when NMC initially collapsed. This is a stark reminder that conduct risk can vastly multiply traditional credit risk.

When the settlement was disclosed, Bank of Baroda’s shares fell more than 4 per cent in a single day, an investor signal that the market read this as a severe balance-sheet event rather than a mere legal footnote. For context, a $600 million settlement effectively wipes out the equivalent of an entire quarter’s net profit for the institution. When an out-of-court settlement reaches such a magnitude, compliance ceases to be a back-office checklist; it becomes a strategic capital-preservation function.

The Inverted Ledger: When Creditors Face the Estate

The traditional framework of credit risk is structurally simple: assess the borrower, lend prudently, and recover or restructure in case of stress. Historically, capital losses were explained almost entirely by borrower failure.

The NMC litigation reflects a striking inversion of these institutional expectations. A bank is ordinarily the claimant when a borrower defaults. Here, the insolvency administrators of the bankrupt estate impleaded a lending bank. They alleged that the bank’s own conduct—specifically, systemic lapses in due diligence, transaction monitoring and compliance—actively contributed to the perpetuation and concealment of a massive corporate fraud.

This turns the traditional creditor-debtor dynamic on its head. The legal proposition moving through global financial centres is no longer merely, “you lent to a fraudulent borrower.” Instead, the accusation reads: “your institutional systems allowed fraudulent financial flows to persist and remain hidden.”

This moves the bank from being a passive provider of capital to an integral, accountable node in the financial system. It marks an important milestone in what may be described as conduct-linked credit liability.

The Expanding Perimeter of Banking Duty

Historically, a bank’s legal obligations were defined primarily by contract and prudential regulation. The borrower relationship was central.

Today, banks operate under an expanded set of expectations spanning KYC obligations, anti-money-laundering surveillance, suspicious-transaction monitoring, beneficial-ownership verification and group-wide governance standards. These are not merely regulatory checklists. Increasingly, they are interpreted as independent duties owed to the integrity of the financial system itself.

The implication is subtle but profound: a bank may face liability not because a borrower defaulted, but because its internal processes were judged insufficient to detect abnormal financial behaviour. In this framing, compliance is no longer a back-office function. It becomes part of the bank’s risk-bearing structure.

Why the NMC Litigation Matters

At its peak, the company was valued at $8.6 billion, operated across 19 countries, and was the first Abu Dhabi company to list on the London Stock Exchange. Scrutiny began with a December 2019 report by short-seller Muddy Waters questioning its accounts; a subsequent investigation eventually uncovered $6.6 billion in undisclosed debt.

The insolvency administrators pursued not only former management but also external financial institutions, including Bank of Baroda, alleging that certain banking channels facilitated or failed to interrupt suspicious flows.

While no court reached a final judgment on these allegations, the fact that proceedings advanced to a live trial in March 2026 and resulted in a $600 million settlement by Bank of Baroda’s Abu Dhabi branch suggests that the evidentiary and legal risks for at least some defendants were material. This settlement pertains specifically to Bank of Baroda’s Abu Dhabi branch and does not represent a global resolution of all claims or defendants in the wider NMC litigation, which continues against Shetty and Manghat and has involved multiple parties across jurisdictions.

The bank’s position, therefore, was not merely reputational. It was the possibility that a court could recognise a broader duty of diligence in the way financial institutions process and monitor transactions connected to corporate clients.

From Credit Risk to Conduct Risk

What is emerging globally is a redefinition of banking risk itself. Earlier regimes focused on the question, “Did the borrower repay?” The emerging regime increasingly asks, “Did the bank’s behaviour contribute to the persistence or concealment of loss?”

This is the transition from credit risk to conduct risk.

Conduct risk is more complex because it is not confined to a single loan or transaction. It spans systems, incentives, reporting structures, compliance architecture and even organisational culture, and pervades the life cycle of the client relationship.

A bank may have sound credit underwriting but still face liability if its transaction monitoring systems fail to detect patterns that, in hindsight, appear obviously suspicious. The future credit officer will be judged less by how meticulously documents were collected than by how intelligently the transaction was understood.

The Historical Precedents

This evolution is not unique to this case. It fits within a broader historical pattern across industries.

In the collapse of Barings Bank, the issue was not simply trader fraud but the breakdown of segregation of duties that allowed unchecked risk accumulation. In Danske Bank’s AML scandal, the question became whether inadequate controls allowed illicit flows to pass through the system. In Wells Fargo’s account-fraud episode, incentive structures created institutional behaviour that produced widespread misconduct. In each case, liability and blame extended beyond individual wrongdoing to the systems that enabled it.

Outside banking, the same reasoning explains the fall of Arthur Andersen after Enron, where audit-process failure destroyed institutional credibility, and Boeing’s 737 MAX crisis, where certification and oversight systems came under scrutiny. In both, the story is process, not persons.

The pattern is consistent: modern accountability is increasingly about process integrity rather than isolated misconduct.

What It Means for Credit Administration

For credit professionals, the implications are not abstract.

The credit file is no longer evaluated solely on whether the borrower appeared solvent at the time of sanction. It is increasingly judged on whether the institution demonstrated adequate intellectual engagement with the transaction’s economic reality, by asking whether the structure makes commercial sense, whether cash flows match stated business activity, whether concentrations or circular flows go unexplained, whether related-party transactions show opacity or artificial layering, and whether multiple banking relationships are seeing only a fragmented view of the same exposure.

The shift is from document verification to economic sense-making. In this environment, credit administration becomes less about procedural compliance and more about interpretive capability.

Technology Raises the Bar

A further layer intensifies this shift: technology.

Modern banks possess tools for transaction monitoring, network analytics, anomaly detection and behavioural pattern recognition that were unavailable a decade ago. This alters the legal and regulatory expectation of “reasonable care.” Once a capability becomes widely available and operationally feasible, failure to deploy it may itself be interpreted as inadequate diligence.

In other words, technological progress raises the baseline of institutional responsibility.

Towards a Trust Economy

What emerges from cases like NMC is a broader redefinition of what society expects from financial institutions. The industrial age rewarded production efficiency. The financial age rewarded capital-allocation efficiency. The emerging trust age increasingly rewards process credibility. The real lesson from NMC is that process risk has become financial risk. Weak governance no longer results merely in regulatory criticism; it can crystallise into direct balance-sheet loss.

Banks are no longer evaluated only on profitability or growth. They are evaluated on whether their internal systems contribute to the stability and integrity of the financial ecosystem. In that sense, compliance, governance and risk architecture are not defensive costs. They are core elements of institutional legitimacy.

Banks as Custodians of Systemic Trust

The Bank of Baroda–NMC settlement should not be read as an isolated legal outcome. It reflects an evolving doctrine in global finance: that institutions facilitating capital flows may also be accountable for the integrity of those flows.

This does not imply that banks become guarantors of all borrower behaviour. Nor does it suggest strict liability for fraud. Rather, it signals a growing expectation that banks must demonstrate not only prudent lending but also credible systems of detection, escalation and prevention.

The deeper transformation is this. The bank of the future will not be judged only by the quality of its assets, but by the credibility of its processes. In an era where trust itself has become a form of capital, governance is no longer a support function. It is the business.

And that, ultimately, is what makes the NMC case more than a settlement. It is a marker in the slow redefinition of what it means to be a bank in the twenty-first century.