The crisis at New India Co-operative Bank (NICB), whose board was superseded by the Reserve Bank of India earlier this month and all transactions suspended, has been brewing for several years, and in 2020 a group of former employees had flagged concerns over the functioning of the bank in a letter to the regulator.
The letter signed by over 20 ex-employees at NICB detailed several unethical practices by the bank’s top brass, including suspicious holding of AGMs, shady transactions, discrepancies in loan sanctions, excesses of the management, among others. businessline has seen a copy of the letter. NICB did not respond to queries sent till press time.
The former CEO of New India Co-operative Bank (NICB), Abhimanyu Bhoan, published a newspaper advertisement for bank members to appear for a special general body meeting in Mumbai on January 18, 2020, to take their approval to convert the co-operative bank into a small finance bank (SFB).
However, the meeting did not go smoothly. All directors and chairman of Maharashtra Urban Co-operative Banks’ Federation opposed the proposal saying co-operative banks are expected to cater the needs of their local citizens, not maximise profits. But what the federation officials learned from the bank’s existing and ex-staff was disturbing.
Ex-employees of the bank claimed NICB was working in a “suspicious atmosphere” wherein corrupt practices were being followed, and if granted the SFB licence, the management would engage in such practices at a “higher level”. The federation directed the ex-employees to write to the Reserve Bank of India, laying down all concerns. The bank, meanwhile, was not able to get approval for conversion into SFB.
Letter to RBI
In the letter, the ex-employees claimed the bank’s AGMs were conducted without providing sufficient information to the shareholders, or letters of intimation were sent at the fag end or even after the AGMs. Venues and timing of AGMs were inconvenient, and staff strength used to be more in numbers than shareholders at the AGM.
“As a rule, bank’s annual report needs to be displayed at the branches prior to the AGM. However, it is never so displayed at any branch premises…There are also instances that annual reports which were sent to the branches before AGMs, were recalled once AGMs were done and another annual reports were sent in their places…,” the letter said.
Reserves of the bank were alleged to be illegally appropriated to the profit and loss account for showing increase in profits. Personal expenses of NICB Chairman Hiren Bhanu were claimed to be illegally paid from bank’s balance sheet. There were instances that when various charges recovered from account holders got diverted to personal accounts of directors and their relatives. After some duration the said suspicious accounts got closed.
The ex-employees said till 2010, NICB’s advances mainly consisted of small ticket loans, majority of which were extended to priority sector. Advances of more than ₹5 crore were not usually entertained. Things changed with the new Chairman taking over, and the bank started sanctioning corporate loans of up to ₹25 crore at the head office level, without the knowledge of the branch managers.
“Access to view this loan was restricted to the branch managers. Some of these loans slipped into NPAs within one year. There are instances wherein some NPA accounts are closed from the amount disbursed to the sister concern of the said borrowers,” it said.
“Top floor of the corporate office at Prabhadevi is used for entertaining friends and relatives of chairman and HNI borrowers. It is also learnt that on top floor there was an arrangement for organizing parties by serving liquor etc. On one such occasion of December 31 due to nuisance, high noise level, neighbourhood people had made police complaint and police had to interfere. However, the bank through political pressure somehow suppressed the matter,” the letter said.
RBI action
The RBI swung into action in January 2024, but for entirely different reason than the alleged mis-practises. It imposed a Rs 15 lakh fine on the bank for breaching the prescribed ceiling on charity donations during FY21.
A year later, it has now superseded the bank’s board, appointed an administrator, and restricted the lender from allowing customers to withdraw their funds, and barred bank from offering new loans, advances, citing significant regulatory non-compliance. According to sources, 90 per cent of the bank’s depositors are insured under the DICGC scheme.
Co-operative banks have accounts of co-operative housing societies and trusts that run educational and other social institutions. One such educational trust had around ₹3 crore parked with NICB and is now facing existential crisis as its monthly expenses is around ₹30-40 lakh. Around 150 teachers at the educational institute have their salary account with the bank. Super senior citizens, patients in need of funds and even students are now seen lining up outside the bank’s branches.
While the RBI has not cancelled the banking licence of NICB, it could have stepped in earlier years to counter the build-up of stress at the bank. ENDS
A timeline
— Bank calls special meeting on January 18, 2020, for SFB conversion
— Maharashtra UCB Federation protests along with ex-employees
– -Ex-employees sends letter to the RBI alleging unethical practices, corporate loan NPAs, and excesses of management
— RBI conducts inspection of bank’s FY21 book
— RBI finds non-compliance; imposes ₹15 lakh fine on NICB in January 2024
— RBI takes over NICB board, disallows bank to let customers withdraw funds