Bandhan Bank Loan Controversy: NCGTC orders forensic audit in Rs.23000 crore Loans

EY, a large accounting firm, is investigating part of Bandhan Bank’s loan records, which were backed by government guarantees. This action is being directed by the National Credit Guarantee Trustee Company (NCGTC).

What’s Happening

• The audit focuses on loans worth more than ₹23,000 crore from Bandhan Bank, which were backed by government guarantees.
• NCGTC, established in 2014, oversees government credit guarantee funds and is managing this audit.

Purpose of the Audit

NCGTC has asked EY to check whether the bank used two different government guarantees for the same set of loans, find fake borrowers if any; identify window-dressing or evergreening of loans, and check whether the loans were ineligible for the government schemes.

Experts said regulators and investors generally conduct such an audit when there is suspicion about the manner in which a company has used funds.Ratan Kumar Kesh, executive director, Bandhan Bank, told analysts on 9 February that the bank took CGFMU cover in 2020-21 during covid.

The portfolio for which the bank took the cover was worth ₹20,800 crore under CGFMU, and it disbursed another ₹1,950 crore under ECLGS, a covid-era sovereign support programme for select sectors, he said.Kesh added that of the total loans of ₹22,750 crore ( ₹20,800 crore plus ₹1,950 crore), nearly ₹19,000 crore had been repaid by customers.

“The remaining amount, which is around ₹3,600 crore as of December, is sitting as (a) stress book in my current portfolio and we are carrying a provision of more than 89% on that portfolio,” Kesh added.

He explained that lenders could claim insurance cover of up to 15% of the total amount insured, or ₹3,100 crore in this case (15% of ₹20,800 crore). However, the bank claimed ₹2,200 crore in two tranches, he said, adding that the total claim was lower than the maximum eligible limit under the scheme.

Background

• NCGTC initially didn’t disclose the name of the bank but later revealed it as Bandhan Bank after requests from bidders.
• Bandhan Bank’s executive director stated that they had utilized government guarantees during the COVID-19 pandemic to support sectors with loans worth ₹22,750 crore.

Audit Details

• The audit will investigate for possible irregularities such as fake customers, misleading loan practices, and ineligible loan portfolios under government schemes.
• It will also review how Bandhan Bank utilized reimbursements from NCGTC.

Response from Bandhan Bank

• Bandhan Bank clarified that they provided detailed explanations based on preliminary findings from NCGTC’s sample audit.
• The bank emphasized that this audit wasn’t initiated by regulators.