The Business Standard is in possession of these reports, gathering dust in the department of supervision of the apex bank. One such confidential report, submitted in 1993, was taken up for discussion by D R Mehta, former RBI deputy governor in May 1994 at Madras, the Indian Bank's headquarters. Picked up from the cupboards of the bank, the summary of the report offers an insight into the workings of the Indian Bank management, led by its former CMD M Gopalakrishnan.
Following are the extracts of the report:
Credit
The Indian Bank has not been prudent in taking a huge exposure to certain film-related units. Lendings to these units have been marked by ad hoc, piecemeal sanctions, temporary overdrafts for substantial amounts, securities with questionable reliability; there was no proper appraisal and end-use was never verified.
As for the MVR group, with facilities of over Rs 150 crore, the borrowers seem to get credit on their terms... This is a clear instance of over finance and the attendant credit risk.
The bank has not checked the practice of allowing its functionaries to release funds on oral sanctions... These facilities often turned sticky before regular sanctions for instance, East West Airlines, Gemini Pictures Circuits.
By far, the maximum lapses were observed in advances to real estate. These were granted without credit appraisal, without ascertaining the repaying capacity, before even the projects were identified ...e.g. Uma Shankar Modi group, Wadhava group.
The bank has entertained several loss-making units that switched over from other banks...
The protective covenants, if any, stipulated at the time of sanction, were soon diluted e.g. Aswathi Chemicals, Emmisen Export.
There have been several instances where the bank granted ad hoc credit facilities without a detailed appraisal,e.g. Ramakrishna Steel Industries, Pace Elcot Automation.
End-use of funds was not monitored ....Often the advance was split into three or five small loans, ostensibly to different individuals to bring them within executive powers.
Appraisal of working capital requirements based on inflated sales/production not consistent with past performance was noticed in several cases e.g. MVR group, Jagannath Steels.
Large letter of credit facilities continued to be allowed without ensuring the capacity of the constituents to honour their commitments. The bank often landed with huge forced loans e.g. Jagannath Steels, Jagannath Strips,....Essar Gujarat HRC project.
The bank has sanctioned substantial guarantee facilities to certain parties, ,disproportionate to their financial standing.
An instance of pre-emption of the board's powers is the sanction of a letter of credit document against payment (LCDP) facility for $9.7 million to Gujarat Narmada Electronics in April 1992.
Inter-corporate deposits have been arranged by the bank on a large scale, and on the borrowers failing to meet the deposits on due dates, the branches have been readily meeting the claims by grant of clean overdrafts without any authorisation.
The bank has no record of oral sanctions.
Internal Control
The bank could inspect just nine (out of 34) of its regional offices during 1992-93; none of the eight zonal offices or head office departments were inspected during the year.
As per the bank's own study, there are 55 branches that are chronic defaulters in the submission of control returns; most of them are in Calcutta and Coimbatore zones.
Arrears in balancing of books have not been contained. There were 309 branches with arrears in March 1993 as against 290 in March 1992. At five branches, the arrears were for more than three years.
The bank's risk-sharing participation for Rs 100 crore issued in January 1993 to Vysya Bank, covering a part of its priority sector lending, does not appear to be quite in order, given the nature, scope and objectives of inter-bank participation.
The bank continues to understate its credit balances in inter-branch transactions for purposes of demand time liability. The figure is reckoned on the basis of a contrived formula, in the range of Rs 50 crores to Rs 100 crores, while the actual balance .... is often above 1,000 crore.
Income recognition, asset classification
For 1992-93, the bank instructed its branches to charge interest on all non-performing assets. Later, it obtained information from the branches on interest charged but not `collected'. Such amounts aggregated Rs 98.62 crore, and the head office adjusted it partly against past years' provision for bad debts and partly against 1992-93 profit.
There have been numerous instances where asset classification was incorrect. The bank has understated the NPAs, in particular the loss assets.
Profitability
The bank could show a profit of Rs 6.51 crore for 1992-93 only by taking into account unrealised interest of Rs 98.62 crore.
To the extent it was adjusted against previous years' provisions (Rs 43.36 crore), it amounts to writing back past provisions.
Inasmuch as the bank did not really earn any profit in 1992-93, the final accounts may not present a true and fair position; and the profit declared and the various provisions made (towards loan losses, tax and depreciation) or deductions effected all may be illusory.
The position of reconciliation of nostro accounts is highly unsatisfactory with as many as 41,222 entries involving huge amounts pending reconciliation, of which 5,825 entries related to unreconciled entries of $ 1,000 and above or its equivalent.
Bombay and Madras overseas branches together accounted for 95 per cent of the outstanding entries.
The vostro account in the name of Bank of Commerce (M), Berhad (Madras-Overseas) was overdrawn continuously which was not reported to RBI; there has been considerable time lag in raising debit to the account of payment at the drawee branches giving rise to concealed overdrafts.
Delay up to three months has been observed in the submission of "R" returns and other returns.
Working of foreign offices
The Singapore branch charged interest on certain large stagnant accounts for one or two quarters till October 1992. The Colombo foreign currency bureau unit (ECBU) has continued the practice of retaining the profit ...without making provision in respect of large problem credits.
Accountability
The procedure for fixing staff accountability in cases of write off/ compromise proposals was not satisfactory, and in certain instances, the board/committee of directors had directed re-examination of staff lapses.
....The bank had also not looked into staff lapses in many cases. Some of the functionaries have already resigned from the bank's service and the bank is yet to determine whether they are accountable at all.
