The police have stumbled upon a racket that has been cheating banks and financial institutions for the past one-and-a-half years to the tune of crores, by producing fake documents.

Cops said that investigations into the ?biggest fraud involving housing loans in recent times? suggest that around Rs 3.5 crore has been swindled in the past 20 months. The racket was operating on the southern fringes of the city, including parts of Santoshpur, Kasba and Garia.

While 10 persons have been held in connection with the case, sleuths said more arrests are likely to follow.

Officers also suspect that some employees in the banks are hand-in-glove with the cheats.

Police have recovered fake PAN cards and trade licences, which were used to secure the loans, from the arrested persons.

?There is more to this. It appears that Monoranjan Roy and Kaushik Nath were the brains behind the racket. They were the ones who arranged the fake papers. We are also probing the role of some bank employees in the crime,? said city detective chief Gyanwant Singh.

A resident of Jadavpur, Monoranjan Roy was arrested in a hotel in the city on Thursday night after a two-and-a-half-month-long hunt.

Sleuths of the detective department swung into action when, on March 18, the manager of the Lansdowne Road branch of a nationalised bank lodged a complaint that the branch had been deprived of a few lakhs by the racket through housing loans.

Preliminary investigations reveal that Roy and Nath had floated a fake company, Dawson Goods Private Limited, and had declared Gopal Halder, Abinash Chandra Mondal and Kalipada Mondal as its directors.

?Halder and Mondal were vegetable vendors in Baruipur, who doubled as promoters every time a bank official went on inspection to the construction sites. The sites were original, so were the names of those promoting it, but the people who represented the promoters during the inspection were all false,? Singh added.