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The audit was commissioned by National Credit Guarantee Trustee Co. (NCGTC), a state-owned entity that operates and manages several government credit guarantee trust funds. It will cover Bandhan Bank’s loans of approx. $23,000 crores.
NCGTC has asked EY to check whether the bank used two different government guarantees for the same set of loans and to find bogus borrowers, if any; identify bogus or evergreen loans, and check if the loans were ineligible for government schemes.
Experts said regulators and investors typically conduct these types of audits when there are suspicions about how a company has used funds.
In November, NCGTC had floated a tender to conduct a forensic audit of an unnamed bank’s loans covered under two credit guarantee schemes – Credit Guarantee Fund for Micro Units (CGFMU) and Credit Line Guarantee Scheme Emergency Management (ECLGS). It identified the lender after some bidders requested it to avoid conflicts of interest.
Emails sent to Bandhan Bank and EY remained unanswered till the time of writing.
Shares of the Kolkata-based bank fell 7.21% to $200.65 on Monday.
One of the people cited above said the areas mentioned in the tender document were broad and did not necessarily mean that NCGTC had found such deficiencies.
Sidharth Kumar, senior associate at law firm BTG Advaya, said the forensic audit could reveal whether fictitious entities had availed microloans and how Bandhan Bank utilized claims reimbursed by NCGTC.
Other experts said such audits go beyond analyzing loan portfolios.
“These include reviewing internal controls, policies and procedures governing the bank’s operations, and verifying compliance with regulatory guidelines and mandates,” said Ravi Singhania, managing partner at Singhania & Partners LLP.
Ratan Kumar Kesh, CEO of Bandhan Bank, told analysts on February 9 that the bank accepted CGFMU coverage in 2020-21 during Covid.
The portfolio for which the bank took the hedge was worth $20,800 crores under CGFMU, and disbursed another $1,950 crore under ECLGS, a Covid-era sovereign support program for select sectors, he said.
Kesh added that of the total loans $22,750 crore ( $20,800 crore more $1,950 crores), almost $Customers had repaid Rs 19,000 crore. “The remaining amount, which is around $3,600 crore as of December, it sits as (a) stress book in my current portfolio and we have a provision of more than 89% in that portfolio,” Kesh added.
He explained that lenders could claim insurance coverage of up to 15% of the total amount insured, or $3,100 crores in this case (15% of $20,800 crore). However, the bank stated $2,200 crore in two tranches, he said, adding that the total claim was less than the maximum limit eligible under the scheme.
In January, the bank told stock exchanges that NCGTC had conducted a preliminary sample audit and based on its findings, Bandhan Bank had given detailed explanations and disclosed the process followed in support of the claim.
“NCGTC further decided to conduct a detailed audit of CGFMU’s FY21 portfolio and the same was informed to the bank. Furthermore, we would like to clarify that this is not an audit of the bank initiated by the regulator,” he said in the document.
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Posted: Feb 12, 2024, 06:25 pm IST