The Reserve Bank of India (RBI) has found gaping holes in the functioning of the Kozhikode-based Nedungadi Bank. Though the bank had reported a net profit of Rs 14.62 crore for the year ending March 31, 2000, RBI has said that the bank had actually incurred losses to the tune of Rs 55.10 crore.
The RBI, in its report to the Joint Parliamentary Commitee (JPC), said that the increase in profit in the year 1999-2000 was largely due to profit on sale of investments and share arbitrage transactions. "Had the bank made adequate provisions as assessed and reversed the income wrongly recognised, it would have reported a huge loss of Rs 55.10 crore," said RBI.
For the year ended March 31, 2001, the net loss of the bank was at Rs 40.12 crore. Also the net non performing assets (NPAs) of the bank for the period was at 20.3 per cent (Rs 177.02 crore) compared with 22.4 per cent (Rs 183.72 crore) the previous year.
The RBI has also said that there are persisting irregularities in the bank. The monitoring of impaired assets was inadequate which has resulted in increase of NPAs. It has also pointed out that the bank has continuously misclassified advances. The management information system was not adequate and that the control exercised by the regional offices and head offices over branches continued to be ineffective.
According to the new chairman of the bank JR Prabhu, the selection of borrowers, faulty credit appraisal, indiscriminate lending, abuse of delegated powers by branch managers and lack of effective credit supervision were the main contributing factors to the high incidence of NPAs.
The RBI has also found serious irregularities in the exercise of lending powers by officials at various levels. Credit facilities were disbursed without the prior sanction of the appropriate authority or based on the oral sanction of the then chairman AR Moorthy. The bank had also taken over a number of irregular and problem accounts from other banks without following any norms.
