Following is a classic example of nexus between auditors and borrowers and then between bankers. It is not new to bankers though it appears astonishing to outsiders and media men. How Bad borrowers get fresh loans to serve overdue interest and instalment in existing bad loan account and how they convert bad account to good account or keep existing bad loan as standard is not new for experienced bankers.
It however reveals how bankers can help bad borrowers and how they can hide bad accounts. It makes it crystal clear to non-bankers that if bankers want they can save their skin from assault of regulating agencies by concealing their evil works or by hiding the evil works of his predecessors. It is win-win position for borrowers well as for bankers. Bankers proudly claim that that there is very less bad accounts or no bad accounts in their books whereas clever borrowers can bargain with other banks for higher amount of loan. It is open secret that all banks coming under public sector are doing the same thing.
Not only this , if banks declare less amount of NPA , even officials and ministers associated with the Government praise performance of banks and do not hesitate in giving a jump in career to such clever bankers. All remain happy when evil works and evil means are adopted. Dishonesty is the best policy in reformation era beginning from 1991.
Such ever greening process takes place in some form or the other in almost all branches of all banks and at all levels ,branch, Administrative offices and at Central Office which control all. When a loan of small farmer goes bad, branch officials under concurrence or without concurrence of controlling office think it wise to give him additional bigger amount of loan so that he may repay existing bad loan and get some extra money also. If somewhat bigger amount of loan goes bad, such bad borrower including farmers, service providers, professionals, traders and industrialists, all try to obtain bank’s sanction of reschedule of bad loans or sanction of restructure of such bad loans on flimsy ground or get sanction of some extra loans in the name of other sister concerns and other associated firms of the same firm who in turn adjust critical amount of existing bad loan accounts. This vicious circle of debt for debt continues till it collapses and constrained to become unmanageable.
Auditors are ready to prepare High quality of financials for loan seeking companies and firms in such a way that bankers will feel comfort in sanction of loan to such ill-motivated loan seeking companies and firms. Auditors know the art of keeping bankers and borrowers happy. We have seen how auditors helped companies like Satyam Computer, Zoom Developers, Winsom Diamonds etc in winning the positive attitude of bankers. It is not only one or two banks, but all banks come together to help a bad borrower if there are underhand dealings called as commission, bribe or kickbacks.
Various sister banks (all public sector banks are owned by same government) who are competing against each other in high profile and white collared loot and finally making their bank sick .Ministers and officials of all regulating agencies indirectly contribute their role in perpetuating the foul game played by bankers, borrowers, auditors, inspectors and so on. It is the power of bribe that not only CMD of Syndicate bank but as many as 35 banks sanctioned loan to Bhusan Steel. Similarly there are several consortium loans when many banks come together in lending to bad borrowers and cause loss to banks without attracting any blame or any punishment for wrong doing.
After all government is also interested to keep competition among various public sector banks alive so that some bank or the other come forward in keeping their dirty politics going on. They do not want to understand that if any of 28 government banks suffer loss , it is ultimately GOI and public money which is lost.
There are hundreds and thousands of such cases available in almost all banks where team of auditors, Chartered Accountants and inspectors have caused loss to banks in collision with clever and talented bank officials. In this way even CAs get business and huge opportunity to earn money not only from firms and companies but also getting audit work from bank management. It is auditors who sign blindly on false, fake ,fraudulently prepared or manipulated balance sheet of banks and other companies after taking some gifts in cash or in kind . And it is to a great extent due to such nexus between bankers and auditors only that volume of bad assets in banks has been going up and up unabated.
This process continues till the account finally turn NPA and till the bad official is either promoted or get retired safely. In banks taking bribe and getting safe exit and getting rid of punishment if exposed is very much easy. Because birds of same feather are sitting in all offices and in all departments including that of Vigilance, audit and inquiry who apply their clever brain how to prepare files and noting so that the culprit gets acquitted and exonerated from humiliation and from punishment .
The more one is clever in hiding bad debts, the happier will be his boss and faster will be his promotion. This art of living and technique to get faster promotion is not new in banking arena. And this bad culture has only resulted in big jump in bad assets in all banks. And finally it is taxpayer and investors who have to contribute more to keep these banks safe and sound.
Unfortunately GOI and MOF, both are considering root cause of sickness as medicine to cure sickness. Whenever some exposure takes place, team of bankers come with banner shouting that bankers should be kept out of control from CBI and CVC otherwise credit growth will be adversely affected..
Highly positive says auditor on Kingfisher siphoning funds -DNA
According to a report in DNA, which quoted the finance ministry, the Rs 336 crore loan sanctioned by Union Bank of India (UBI) was withdrawn and deposited in another account with a private bank by Kingfisher, which is not allowed.
Moneycontrol Bureau Audit firm Ernst & Young says chances of beleaguered Kingfisher Airlines siphoning off the loans it received from its lenders for purposes other than its sanctioned use is ‘highly positive’.
According to a report in DNA , which quoted the finance ministry, the Rs 336 crore loan sanctioned by Union Bank of India (UBI), which is not part of the SBI led consortium, was withdrawn and deposited in another account with a private bank by Kingfisher, which is not allowed.
"In a similar fashion, the loans and advances taken from the banks in the SBI consortium has also been diverted, according to the findings of the report. The ministry is closely examining the report and we have already asked SBI to act fast on the NPA issue," a FinMin official was quoted in the DNA report.
Three major PSU banks SBI , PNB and IDBI have initiated the process to declare Kingfisher Airlines and others as wilful defaulters after the firms failed to service their debt. As part of the process, E&Y was hired to conduct a forensic audit on the Vijay Mallya-led carrier to check and see whether there was any misuse of the loans.
As per RBI guidelines, it would have to be proven that the borrower had diverted funds which he took from the bank and was not paying up despite having the ability to pay.
The Department of Financial Services, after reviewing top 50 Non Performing Accounts (NPAs) of public sector banks, had asked the state-owned banks to initiate action against defaulters. According to a Business Standard report, Kingfisher is at the number one spot on defaulters.
The list also has Winsome Diamond (Rs 3,243 crore), Electrotherm India (Rs 2,653 crore), Corporate Power (Rs 2,487 crore) and Sterling Biotech (Rs 2,031 crore).Kingfisher Airlines has an outstanding debt of about Rs 4,022 crore to a consortium of banks, led by SBI. United Bank of India , part of the consortium, has already initiated the process to declare the company a wilful defaulter.
Once a company is declared wilful defaulter, criminal proceedings can be initiated against promoters and directors of the company. Besides, it would not be allowed to raise fresh funds from banks and set up new ventures for five years.
As part of the recovery process, banks in February last year decided to sell a portion of the collateral with them, including shares of group companies United Spirits and Mangalore Chemicals & Fertilizers Ltd, Mallya's Goa villa, Kingfisher House in Mumbai and the Kingfisher brand, which was valued at over Rs 4,000 crore at the time it was pledged.
Read more at: http://www.moneycontrol.com/news/business/39highly-positive39-says-auditorkingfisher-siphoning-funds_1155780.html?utm_source=ref_article
Syndicate Bank CMD bribery scam puts spotlight on middlemen-FE
The arrest of Pawan Bansal, director of Altius Finserv Private Ltd, a financial advisory firm that helps corporates raise funds, has put the spotlight on the role of middlemen in the Indian banking sector. Bansal, who was arrested on August 3 along with Syndicate Bank Chairman and Managing Director S K Jain, was one such middleman who fixed deals between the Manipal-headquartered PSU bank and companies looking for large loans.
The CBI has charged Bansal of having acted as a middleman between senior-level functionaries of PSU banks and private companies. Companies like Altius work on a simple model: mid-size companies, often with low credit worthiness and who wouldn’t have ordinarily been considered for loans, approach debt syndication companies such as Altius which work to make their case worthy of consideration by the banks. Altius claims to have been offering financial services like “credit solutions, debt capital market and investment banking”.
Most of these debt syndication companies employ senior-level executives who would have retired from a public sector bank or a financial institution. This helps open doors for them at PSU banks and makes loan approvals easier. The name of the game is familiarity. “Try pushing an unknown money bag into the circle, it will not work,” says a middleman at one of the debt syndication companies in Delhi. “We provide a sense of comfort to the banks.”
Many of the senior staff at Altius are old PSU hands, starting from chairman Hari Das Khunteta, who retired as chairman and MD of Rural Electrification Corporation, and Executive Director Karan Bagga, who had earlier worked with HUDCO.
Loan syndication, though not illegal in India, is a sector that is largely unregulated. In mature financial markets such as in the UK and US, financial companies provide such services for a fee and some of their clients even include nations which propose to raise a loan. In India, in the absence of such financial companies, large business groups have their own supporting entities such as Tata Capital, Mahindra Finance or Aditya Birla Money. Smaller groups, which have to depend on banks, often turn to debt syndication companies.
In the syndication business, the rule of thumb is that for a Rs 100-crore loan, the commission the debt syndication companies get is one per cent. It goes up to 1.5 per cent when the sum is lower. What about paybacks to bank officers? “It depends,” said one of the arrangers. “Salary levels are so low at banks that it does not take much to impress a manager dealing with a loan.”
Syndication companies usually send out a teaser sheet to prospective clients who are seeking a loan. If the feedback is positive, they begin preparing a financial model for their clients and hawk the proposal to a clutch of banks. Since most banks have a trimester cycle of credit committee meetings, the trick is to send in the project about a month ahead of the close of a cycle. That puts pressure on the banks. “Business being weak, (the banks) try to work out a fast response turnaround. Lesser the time, the better the turnaround,” said a person who has worked with some of the Andhra-based infra companies and dealt with these debt syndication companies.
Centrum Capital, one of the biggest debt syndication companies, claims to have expertise in “identification of the lenders and preparation of proposal and process notes in lender-specific formats, interfacing, negotiating and coordinating with the lenders at all levels and assisting in obtaining necessary sanctions for the proposal” and even “assistance during loan documentation to seek timely disbursements”. At Centrum’s Barakhamba Road office in Delhi, a staffer from its debt syndication team told a potential client who had had his loan demand rejected by a PSU bank that if structured well, Centrum could push the case in state-owned banks where it claimed to have “connections” all the way from the operational level to the top.
According to information available with The Indian Express, a range of ex-PSU bank officials make up Centrum’s team, both at its Delhi and Mumbai offices. The Delhi debt syndication team is headed by two ex-Canara Bank officials — T K Bajaj, who retired as general manager of prime corporate credit wing at Canara Bank, and Vijaylaxmi, who was an assistant general manager at Canara Bank and left midway to join Centrum as a vice-president.
Centrum’s debt syndication team in Mumbai is headed by S K Verma, who was head, large corporate vertical, at Union Bank of India, and has other ex-PSU staffers that include vice-president K Pothiraj, who was formerly a general manager at Bank of India, and vice-president R Anchan, who was a deputy general manager at Bank of India. Mathew Joseph, an ex-deputy general manager at Andhra Bank, was also learnt to be working with Centrum till six months ago as a vice-president. Centrum’s managing director P Kalyanaraman is a former executive director of Federal Bank and an ex-GM of state-owned Bank of India. R S Reddy, a former CMD of Andhra Bank and an ex-ED of Union Bank of India, is on the board of directors of Centrum.
An email sent by The Indian Express to Centrum’s company secretary and the corporate affairs team seeking details about the role played by ex-employees of PSU banks employed by it went
Link Financial Express
Bribery scam: Four PSU banks under CBI scanner-Economic times 14th August 2014
http://economictimes.indiatimes.com/et-now/daily/bribery-scam-four-psu-banks-under-cbi-scanner/videoshow/40280126.cms
Public sector bank chief appointments: Why the rot runs a lot deeper- By
Dinesh Unnikrishnan
Ranjit Sinha, the director at the Central Bureau of Investigation (CBI), has struck the right note in questioning the appointment process of chairmen in many public sector banks, besides Syndicate bank.
Sinha confirmed that post the Syndicate bank-scandal, the agency has expanded its probe into the appointments done in other state-run banks since it has found out major irregularities in the processes followed.
A detailed probe in to the appointments in state-run banks could result in more skeletons tumbling out of the closet, for sure.
S K Jain, former chairman and managing director of Syndicate Bank was arrested by CBI sleuths early this month after Jain was caught red-handed accepting bribe from a few private firms in exchange of extending credit facilities.
Besides Jain, CBI has also arrested executives at private firms in connection with the incident.
The arrest of Syndicate Bank chairman and managing director (CMD) and few others for accepting bribes in exchange of extending undue favours to certain companies in connection with loan sanctioning throws open a big question.
Why do only executives of public sector banks and government run-entities fall prey to the evil of bribery again and again?
Jain isn’t the first chairman of a PSU bank getting arrested in a bribery case or for violation of norms. In 1991, the sleuths had arrested K M Margabandhu, CMD of Uco Bank, in connection with the Harshad Mehta scam. He was later sacked. In another case, some ten years back, a former chairman of a Maharashtra-based PSU bank was booked.
That apart, they were several top executives against whom bribery cases were registered by Central Bureau of Investigation (CBI) or central vigilance commission (CVC). To name a few, State Bank of India deputy managing director (DMD) Shyamal Acharya was charged by CBI in November, 2013 for alleged graft in disbursing loans of above Rs 100 crore; in November, 2010, R R Nair, former CEO of LIC Housing Finance in November, 2010 was accused of multiple charges including overlooking regulations while sanctioning loans, changing rules for appointments and extending loans to defaulters. In November, 2010 the CVC alleged severe norms violations against former Corporation Bank CMD, Ramnath Pradeep for similar charges.
The common thread of all these cases is the role of middlemen. Bankers accepted money for wrongdoings through middlemen. In all these cases bankers either offered loans to corporations violating prudential norms or facilitated illegal transactions involving huge amounts. At the same time, there have been hardly any major cases where private or foreign bankers involved in graft case in India, except few instances.
Hence the million dollar question: What is wrong with officers at public sector banks?
The reasons lie with the following:
First, it is an open secret that middlemen are actively involved with most high profile appointments in public sector banks. In many cases, prospective candidates pay up middlemen to negotiate with the power centers to ensure the slot.
The whole process starts the day when one executive director or bank chairman is called for the interview, these middlemen come to the scene (on behalf of politicians, who could influence the appointments) to begin negotiations with the prospective candidate. The stake involved could be several crores of rupees, depending upon the profile of the position offered and size of the institution.
"This trend has gained momentum in the last five years during the regime of second UPA. There is a hard bargaining always," said a senior banking industry official, who spoke on condition of anonymity.
For those who bag the ‘costly job’, to recover the money through their regular compensation is impossible and the only way to do so is to extend favors to clients and receive kickbacks and they often do that. Some get caught, some do not.
"The problem is with the system," said a financial services expert with a leading multinational consultancy. "Most of the time, top bankers at PSU banks are prone to take bribes to recover the money they paid to get the seat," said the expert, who too declined to be named.
The deals are done with the help of expert middlemen, who negotiate on behalf of both. In exchange of the bribe they receive, the banker is supposed to influence credit decisions in favour of the beneficiary, who, by the rules, is ineligible for the loan. For instance, in the case of the corporate loan scam in 2010 that led to the arrest of eight senior executives at government banks and the CEO of LIC Housing Finance, the sleuths had pointed at the role of a company that acted as a middleman — Money matters India Private Ltd. The CEO of the company, Rajesh Sharma, was arrested for his role in the scam.
Second, there is a huge difference between the compensation levels of executives at the same ranks in public sector and private sector.
In 2010, former State Bank of India chairman, O P Bhatt famously said that he is the least paid CEO among the fortune 500 companies, when an average fortune 500 CEO earned above Rs 47 crore a year, that time.
Even in India, a look at the annual compensation received by CEOs of private banks will tell you the story. In 2013-14, HDFC Bank’s managing director, Aditya Puri received an annual compensation of Rs 6.07 crore, while that of Chanda Kochhar, the chief of ICICI Bank, stood at Rs 5.23 crore. Shikha Sharma, managing director and CEO of Axis Bank, took home an annual compensation of Rs 3.75 crore. The remunerations of CEOs at state-run banks, including that of the largest lender, SBI is nowhere close to these.
For a bank executive, who probably began his career as a probationary officer and went through the ranks over the years, the chance to reach the top job ( after spending 25 or 30 years in the industry) is an irresistible idea. Getting past the ‘political’ hurdles to achieve that post is the dream of his life. This is quite unlike in the private sector, where competitive skills, career background and efficiency parameters decides the prospects of a bank executive.
"There should be professional approach in selecting the CEOs of state-run banks unlike the current situation, where ministers call the shots. Also there needs to be a relook at the compensation levels of the state-run bank officers. Otherwise you will see more such cases, where greed overtakes prudence," said the expert quoted above.
Probably he is