The Hindu : Karnataka News : Probe finds irregularities in sanction of loans

Online edition of India's National Newspaper
Wednesday, Dec 22, 2004

Karnataka

Karnataka

Probe finds irregularities in sanction of loans

By Rishikesh Bahadur Desai

BIDAR, DEC. 21. Six months after the National Bank for Agriculture and Rural Development (NABARD) asked it to act against the Bidar District Central Cooperative Bank (DCCB) for committing serious financial irregularities in violation of the Banking Regulations Act, the Karnataka State Cooperative Apex Bank is yet to take any action.

The Bidar Zilla Kisan Bachao Andolan Samiti, which complained to NABARD in this regard, says the DCCB has not changed its method of functioning. "Last week, the bank could not honour a cheque from the Krishna Grameena Bank. If the same situation continues, then farmers who form 90 per cent of its customer base will be put to inconvenience," Gundappa Vakil, member of the samiti's executive committee, said.

An inquiry was ordered after NABARD received complaints that the DCCB faced a liquidity crunch between December 2003 and March 2004, which led to a run on the bank. Deposits declined from Rs. 267.45 crores to Rs. 212.41 crores in a matter of days in March 2004. Advances declined from Rs. 430 crores to Rs. 399.90 crores during the same period. The depositors withdrew Rs. 24.46 crores from the DCCB in 11 days.

The report, a copy of which is in possession of The Hindu, reveals that two types of irregularities were committed: loans were given to individuals and institutions beyond their repayment capacity and book adjustments were shown as actual recovery. Eleven other types of financial irregularities have been committed, according to the report. The inquiry blamed the way the DCCB was run for the liquidity crunch.

Although NABARD cautioned the DCCB on January 29 and sought an explanation for the decline in deposits, no action taken report was submitted till the end of March. NABARD advised the DCCB to establish a system to estimate and monitor the inflow and outflow of funds or to estimate the maturity pattern of deposits.

A statement by the Apex Bank Managing Director made before the NABARD General Manager, M.L. Sukhdev, on March 9 indicates that the Apex Bank was aware of what caused the liquidity crunch in DCCB. When asked to help the DCCB out of the crisis, the Apex Bank told NABARD that it did not intend to do this as the DCCB was involved in many undesirable transactions such as accounts adjustments, roll-over credit, inter-account transfer of funds and ever greening of accounts.

NABARD warned the Apex Bank that the DCCB had no source to repay loans given to it. The DCCB had defaulted Rs. 50.39 crores to the Apex Bank as on March 31, 2004.

Norms violated

NABARD found that the DCCB had violated section 20 of the Banking Regulations Act, 1949 by sanctioning unsecured advances to many individuals and institutions, including the Naranja Sahakari Sakkare Karakhane (NSSK). Provisions of the Act that the borrower and the lender should not be the same person were violated.

The report said the DCCB had sanctioned loans to Aland Cooperative Sugar Factory and the NSSK in violation of the norms.

Similar lapses were noticed in the sanction of loans to the non-farm sector.

Loans were given to individuals and institutions without assessing their repayment capacity.

A sample investigation of the 20 largest accounts revealed that the DCCB had obtained a registered mortgage of only Rs. 1 lakh even for loans of Rs. 1 crore.

The property offered as security for the balance was by way of indemnity bonds on stamp paper worth Rs. 250.

NABARD had asked the Apex Bank to immediately order a scrutiny of the legal validity of such bonds.

The DCCB was found to have violated section 24 of the Banking Regulations Act by defaulting on the maintenance of Statutory Liquidity Ratio for nine fortnights.

The DCCB did not comply with NABARD's directions to rectify such mistakes immediately.

When The Hindu asked him about this, the Apex Bank Managing Director, E. Shreedharan, sought a written request for details. But he did not reply to the questionnaire even three weeks after it was sent.

Charges refuted

The DCCB Chairman, Gurupadappa Nagamarapalli (who incidentally was inducted as a Cabinet Minister in the recent Ministry expansion), refuted allegations that the bank's finances were bad.

All directions of NABARD had been followed.

"There is no problem with the bank now. We have cleared all our dues to the Apex Bank and have started a vigorous recovery campaign,'' he said.

He dismissed the samiti's allegations as an ill-intended campaign by vested interests. About the same person controlling the lender (DCCB) and the borrower (NSSK), he said it was a technical irregularity that was not serious.

Printer friendly page
Send this article to Friends by E-Mail

Karnataka