Mumbai: Big-Four accounting firm EY is conducting a forensic audit on a portion of Bandhan Bank’s loan book for which the lender availed government guarantees, said two people aware of the development.
The audit is being conducted at the behest of the National Credit Guarantee Trustee Company (NCGTC), they added. It encompasses loans worth more than ₹23,000 crore from the private lender, according to tender documents on the state-owned entity’s website. Set up in March 2014, NCGTC is the common trustee company that operates and manages the government’s various credit guarantee trust funds.
The tender documents showed that the winning bidder would check whether the bank used two different government guarantees for the same set of loans. Experts said regulators and investors generally conduct such an audit when there is suspicion about the manner in which a company has used funds.
In November, NCGTC floated a tender that called for a forensic audit of a bank’s loans covered by two credit guarantee schemes – the Credit Guarantee Fund for Micro Units (CGFMU) and the Emergency Credit Line Guarantee Scheme (ECLGS). It did not identify the lender at first, but revealed the name after some bidders asked for it in order to avoid a conflict of interest.
An email sent to Bandhan Bank and EY did not elicit an immediate response.
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 ESLGS, 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.
According to the tender cited above, NCGTC wants the auditor to check for instances of fake customers; identify window-dressing or evergreening of loans; check whether the portfolios were ineligible for the government schemes; and trace the source of overdue repayments made by borrowers whose loans were part of the schemes, among other things. One of the people cited above said that these were broad areas mentioned in the tender and did not necessarily mean that NCGTC had found such deficiencies.
Sidharth Kumar, a senior associate at law firm BTG Advaya, said the forensic audit could reveal whether fictitious entities had availed of micro-loans, and how Bandhan Bank used the claims reimbursed by NCGTC.
Others said that such audits look beyond analysing 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, Singhania & Partners LLP.
The bank told the stock exchanges in a filing in January that NCGTC had conducted a preliminary sample audit, and based its findings, Bandhan Bank had given detailed explanations and revealed the process followed in support of the claim.
“NCGTC has further decided to conduct a detailed audit for the CGFMU portfolio of FY21, and the same has been intimated to the bank. We would further like to clarify that this is not an audit of the bank initiated by the regulator,” it said in the filing.
Shares of the Kolkata-headquartered bank shed 7.21% to ₹200.65 on Monday.
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