Industrial Investment Bank of India (IIBI) overstated net profit by 21 per cent, or Rs 9.73 crore at Rs 46.27 crore in 2000-01, the Comptroller and Auditor General of India (CAG) has pointed out.
The bank also overstated its assets by Rs 11.24 crore and understated its liabilities by Rs 9.72 crore.
CAG said in its latest report that loans of Rs 14.32 crore advanced to four companies by IIBI in 2000-01 were not backed by any tangible security. The company had made a provision of Rs 6.50 crore for doubtful recovery of these loans.
As net worth of these companies had been fully eroded, full provision should have been made for doubtful recovery of these loans. The shortfall in provision resulted in over-statement of profit by Rs 7.82 crore.
Although the management of IIBI argued that provisions were made in keeping with Reserve Bank of India guidelines considering the available asset coverage for lending in these companies, CAG was of the view that the management's contention was not acceptable.
Commercial prudence demanded full provision against the loans as they were not backed by any tangible security and net worth of borrowers was negative.
Further, loan of Rs 13 crore advanced to another company was secured by assets to the extent of 79 per cent. IIBI had made a provision of 30 per cent for doubtful recovery of the loan.
As the borrowing company had been referred to BIFR, full provision should have made for unsecured portion of the loan. The shortfall in provision resulted in over-statement of profit by Rs 1.91 crore.
The management argued that in this case they considered the available security based on valuation of fixed assets of borrowers and made provision in keeping with RBI guidelines. But CAG has once again ruled out the company's view on the ground that the 21 per cent of the loan was not secured by assets and hence full provision should have been made for unsecured portion of the loan.
Meanwhile, net NPA at the company increased from 14 per cent in 1999 to 16.09 per cent in 2000-01. As much as 34.65 per cent of gross NPAs were three years old, while 15.44 per cent were a year old.
