In April 2015, the Siddhi Vinayak Logistics Limited (SVLL), a Surat-based transport firm, entered the ‘Limca Book of Records’ as a company maintaining ‘largest’ fleet of heavy and medium commercial vehicles in India with ‘6,737 vehicles’ on the last count and a unique corporate social responsibility (CSR) initiative that marked September 17 every year as the ‘Drivers Day’ – ‘Chalak Diwas’, in Hindi.
Around the same time, in the Bank of Maharashtra (BoM) board at its Pune headquarters and among 10-11 other public sector banks (PSBs) that had lent money to the company, panic had set in.
By March 2015 end, while it was trumpeting its success, the SVLL had become the single big-value defaulter of the BoM with unpaid dues standing at Rs 839 crore, loans that the bank was to discover later were granted from September 2012 to March 2014 against forged documents, zero collateral and in violation of rules.
Together, the SVLL had borrowed heavily for its expansion and defaulted on the loans of all PSBs running close to Rs 2000 crore. First a red-flagged-account, then an NPA, and lately a fraud: the SVLL story with the BoM and other PSBs shows that big loopholes exist in the banking sector.
The BoM’s single bad loan, the SVLL fraud, is multiple times its annual net profit of Rs 127 crore in 2014-15 fiscal – a somber state for a bank that has peasants and working classes as its main customers in Maharashtra. It’s perhaps the only PSB that came up in the 1940s from hard-earned money of the working classes and still has deep rural penetration. The reason for panic was obvious: SVLL was given loans in violation to rules.
Not only that, the BoM’s higher authorities in Pune neglected an alert sounded by its own branch manager in Surat in March 2014, cautioning the bank not to lend more money to SVLL since its credibility was in doubt, a set of confidential reports, bank’s internal communication, and other documents about this company that this writer is in possession of, show. What’s more, when all its efforts to persuade the firm to repay the money failed, a top source in the bank said, the BoM board comprising top officials wanted to quietly write off the SVLL’s unpaid dues as NPAs, but reported lack of consensus within and an RBI stricture prompted the management to suspend its three officials, tag the SVLL as a ‘willful’ high-value defaulter (its account had been branded NPA in December 2014) and lodge a CBI complaint given the quantum of money involved.
Around mid-August, the CBI raided several SVLL offices and BoM’s branches in Pune and Surat from where the loans were disbursed. No further detail is forthcoming from the agency on investigations.
Inside sources say the SVLL case is murkier than it seems.
In one of his letters to the bank explaining the delay in payments last year, one document reads, the firm’s founder director Roopchand Baid – apparently to flaunt his political connections – annexed a letter Prime Minister Narendra Modi gave the firm lauding its driver’s day initiative (in September 2014); he even flaunts his picture with Modi on the company’s website, and in one of his communications around the same time to the bank explaining the delays in repayment of loans cites, as one of the reasons, his pre-occupation in Modi’s 3-D campaigning on the specialized vehicles during the 2014 general elections.
Growing NPAs, willful defaults and stressed assets:
As 2015 comes to end, the BoM like all other public sector banks (PSBs) of India forays into a new year with more such frauds coming to the fore.
The PSB’s bad debts crossed Rs 3 lakh crore by June 2015; up almost nine to ten times it was in 2008 at Rs 39,000 crore. Cumulatively, their stressed assets are hovering around Rs 7.7 lakh crore, a staggering 11 per cent of total advances of Rs 70,00,000 crore. If one adds that between 2001 and 2015, the PSBs wrote off nearly 2.5-3 lakh crore worth of NPAs of the handful of defaulters, according to the statements by the ministers in the Lok Sabha and Rajya Sabha and a comprehensive booklet on NPAs published by the All India Bank Employees Association (AIBEA) last year, the story turns scandalous.
The RBI governor Raghuram Rajan is clearly worried. On December 23, he raised concern once again “over the rising stressed assets of big business groups and their impact on financial system.” Credit to top 100 large borrowers (in terms of funded amount outstanding) made up for 27.6 per cent of the credit to all the large borrowers and 17.8 per cent of the credit of all commercial banks, Rajan said in the latest financial stability report (FSR) in yet another indication of the banks’ precarious situation with regard to loan defaults.
Of the total NPAs today, there is no clarity on willful default cases, but in the last one year, the banks have filed cases in which the dues recoverable from the defaulters amount to over Rs 44,000 crore, going by the data on the suit-filed cases with the credit rating agencies like Crisil and the other official sources.
Other than this, the banks have sold their bad loans worth Rs 1.89 lakh crore to the asset restructuring companies (ARCs) for a mere Rs 62,551 crore, accruing a loss of over Rs 1.26 lakh crore.
As of June 2015, the BoM’s stressed assets (NPAs and red-flagged accounts) stood at Rs 13,636 crore – or 13.48 % of gross advances of Rs 101,210 by March 2015, the bank’s annual statement shows.
Of that, the gross NPAs stood at Rs 6402 crore, or 6.33 per cent of its total advances. Top 50 NPAs account for Rs 3104.75 crore (for comparison, it’s equivalent to the annual crop loan in the entire region of Vidarbha with 35 lakh farming families), and NPA amount involved in Rs 1 crore and above total Rs 5177.88 crore. The BoM had restructured bad loans totaling Rs 7234 crore by March 2013; they fall in stressed assets zone.
The government’s repeated answers to questions on NPAs in the Parliament cites recessionary trends as an important reason for the rising graph of stressed assets, but the suit-filed cases show a different story – one that needs a thorough inquiry. On December 10, in New Delhi, the former AAP founders Prashant Bhushan and Yogendra Yadav sought a comprehensive white paper from the central government and PSBs on all the stressed accounts, the NPAs written off by the banks so far, and a list of willful defaulters. They circulated a note explaining how the banks are dealing with stressed assets in three different heads: willful default; NPAs, and stressed assets that were restructured under the corporate debt restructuring (CDR) scheme but show no signs of repayment thereby again becoming as non-performing assets (NPAs) with higher outstanding dues.
The question is: what has happened of the Rs 10-11 lakh crore worth of money, either already written off, or converted into stressed assets? With that sort of money, India could build 2 lakh km of four-lane highways (at an official finance rate of Rs 5 crore/km); foot MGNREGA bills for at least two decades; give loan waivers to the country’s beleaguered peasantry; gift a toilet and a tank to every citizen to achieve the PM’s dream of ‘Swachh Bharat’, or build ten bullet trains like the one planned between Mumbai and Ahmedabad.
By the end of 2015 fiscal, the BoM had filed 541 cases of willful defaults running into recoverable dues of Rs 1427 crore, following the RBI’s mounting pressure on banks to crack down on high-value defaulters. The instances of fraud registered an increase by 309.12% from 348.8 crore in March 2014. In the 2014-15 fiscal, the bank reported 56 new cases of fraud. The SVLL’s loan default of Rs 839.1 crore is one of them.
On September 28, 2015, a forensic audit of the SVLL accounts and its group companies ordered by the bank’s board confirmed that the company had mis-utilized the funds. It bared the SVLL’s much-touted CSR scheme – also main focus of the bank’s complaint with the CBI. The initiative in fact was a ploy to transfer its corporate debt on to individual drivers with the alleged complicity of some top bank officials, according to BoM’s top source. So much so, that even the drivers were unaware of the loans taken in their names by SVLL until the bank, in desperate measure, last year sent notices to more than 2000 such individual drivers. This writer is in possession of a seven-page note meant for the Board’s audit committee that enumerates the forensic report’s gist. This note and other documents such as the bank’s inspection summary of the large borrower accounts and minutes of the joint lenders association (JLA) with regard to the SVLL credit exposure, one question goes unanswered: How could the BoM lend big loans to SVLL without basic checks (such as its credit worthiness), when it doesn’t grant such a leeway to ordinary citizens seeking small loans?
Forensic audit findings:
A forensic audit is an examination and evaluation of a firm's or individual's financial information for use as evidence in court, according to one definition, and can be conducted in order to prosecute a party for fraud, embezzlement or other financial claims. Accordingly, a chartered accountant firm tasked to carry out the SVLL’s forensic audit gave its final report on September 28, 2015, having given its initial tracking and interim draft report in May and June, 2015, respectively. The report mentions of severe lack of data and information from other banks and official sources to fully confirm and trace the company’s money trail.
That’s perhaps now for the CBI to investigate.
The forensic audit shows the money trail and explains how the SVLL – which claims to have a pan-India presence in the heavy transport segment – allegedly routed the funds through its sister firms, put as collateral the same vehicles against loans from different banks, and used new loans to pay off part old loans or as margin money to buy new trucks, but defaulted on its loan repayments.
In 2012-2013, the BoM had through its three different branches (one in Surat and two in Pune) released loans worth Rs 933.25 crore to the SVLL for six different purposes – 1) a loan of Rs 35 crore as working capital; 2) a loan of Rs 99.85 crore as the loans to SVLL drivers to buy old trucks under its ‘Chalak se Malak’ scheme; 3) Rs 70 crore as term loan for the purchase of new trucks; 4) a term loan of Rs 90 crore for purchase of new trucks; 5) Rs 239.44 crore as loans to SVLL drivers to buy old trucks under its ‘Chalak se Malak’ scheme; 6) and Rs 398.96 crore as loans to drivers to buy new trucks. Of that, the company repaid Rs 77.38 crore to the Model colony branch from the loan taken from the Deccan Gymkhana branch a little later, the report shows. The remaining loans with principle and interest overdue are outstanding dues on the SVLL accounts.
The SVLL is yet to respond to the queries mailed by this Reporter, but as per the bank documents, the firm in one of its replies to the BoM pegged its valuation at over Rs 6000 crore while assuring that it was trying to raise funds by a stake-sale or pledging its shares to raise corporate loans. The company urges the bank in one letter not to initiate any action that would damage its reputation and affect the livelihood of 9000 families.
Concurrently, even the other principle lenders such the Corporation Bank and Oriental Bank of Commerce began to get worried on the SVLL’s increasing NPAs and the company’s failure to stick to its promises.
It was during that 2012 fiscal that it transferred part of its debt burden on to the drivers under what it claimed was a CSR activity: a scheme christened ‘Chalak Se Malak’. The garb was generous. The company said it was making its drivers owners of vehicles, or equity shareholders. In reality, it was transferring its debts to the drivers and re-routing the individual loan money into its group accounts, with the banks completely unaware of such transactions. In doing so, it was converting high-interest commercial loans into low-interest small and mid-segment, cheating the bank by hypothecating same vehicles against different loans, and later defaulting on the payment of both, the term loans and the individual loans on old trucks, the forensic audit shows.
The same fiscal year, the SVLL shot into limelight by placing an order to Tata Motors of 1300 plus trucks, the value of this order was reported at that time to be around Rs 225 crore.
The company in its proposal to the BoM said it would sell its used trucks to the drivers as a reward of their loyalty under the CSR initiative at a mutually agreed price. The drivers would operate the vehicles as their own but continue to deploy them with the SVLL as sub-contractors. The SVLL would deduct the equated monthly instalments for loans from the bills payable to the drivers-cum-owners. Once the repayment was done, the truck would be transferred in the drivers’ name; until then it would be hypothecated to the BoM. But the proposal also mentioned that the loans availed by the SVLL from other lenders would continue.
The company had its accounts mainly in the Corporation Bank and the Oriental Bank in Surat, according to the bank’s recent internal investigations. What it did in this case was to convert its corporate loans into the individual loans, and non-priority portfolio into priority one. The BoM’s Pune branches played a major role. The officials formulated a pattern on the lines of the scheme for financing Small Road Transport Operator (SRTOs) and issued loans at concessions, such as a concession of 0.5 per cent in the processing fee, deviation in age limit of the truck to be considered on a case-to-case basis. The bank officials assured its management that all advances would be classified under priority sector (about Rs 100 crore) and around 20 per cent of the advances may be classified under weaker sector with an assured repayment through SVLL linkage. But nothing as such happened. In 2015, bank officials were struggling to get the money back from SVLL.
The forensic audit found the SVLL did not transfer the trucks in the drivers’ names and that a vast majority of the vehicles were already hypothecated to its other lenders, a fact that BoM’s Surat branch manager had in his March 2014 communication to his head office mentioned while red-flagging the SVLL proposals.
The bank’s zonal authorities apparently did not take consent from their head office while sanctioning the SVLL loans, a gross violation of the bank’s credit policy and RBI guidelines. It was on this account that the BoM finally suspended its three officials when the alleged default came out of the closet.
In the case registered against the SVLL, its directors and BoM officials, the CBI says the BoM was induced into sanctioning and disbursing 2804 vehicle loans to the said firm and its drivers under the ‘Chalak se Malak’ scheme on the basis of false assurances and tampered/forged vehicle registration documents, to avail the credit facility aggregating to Rs 651.17 crore in the form of loans; term loans of Rs 160 crore; and cash credit limit of Rs 35 crore. In the complaint the bank alleged that having taken the loans, the SVLL Directors did not transfer the ownership of vehicles to drivers. In many instances, the vehicles were and continue to remain hypothecated to the other lenders and were not transferred to the drivers. The SVLL had a direct exposure of Rs 259 crore and an indirect exposure through the SRTO of Rs 645 crore. A major part of loan – over Rs 400 core – meant to purchase new trucks and transfer of old vehicles to drivers was diverted to other purposes.
The bank in its complaint to CBI said the total outstanding dues from the SVLL stand at Rs 839 crore, NPAs as of March 2015.
The forensic audit says there were significant fund transfer transactions between SVLL and group companies, with the bank loans finally being routed or re-routed back to the main company.
Take just one example for instance: The BoM’s Deccan Gymkhana branch in Pune disbursed Rs 130.66 crore as part of financing the purchase of 1150 new vehicles to a company called Addplus Distributors Pvt Ltd; the trucks were to be purchased from Ashok Leyland. The audit report found that though the Ashok Leyland had issued a letter of intent to Addplus it was never appointed an authorized dealer. After getting the money from the bank, Addplus transferred the entire sum to the SVLL and its group companies through four transactions.
The report’s gist observes that the loans were released without adequate supporting documents even for the financing of new trucks; the vehicles already hypothecated to other creditors were offered as collateral against the term or individual loans under the ‘Chalak se Malak’ scheme; loan disbursement from Deccan Gymkhana branch was used for the part payment of loan taken from the Model Colony branch and a part of loan for old trucks was used as margin money for financing new trucks as vendor payment.
The forensic audit could not go beyond the BoM loans because it could not get the statements of account from the other 10 banks from where the SVLL borrowed money, the report says. Also, the tax invoices submitted by the SVLL suppliers did not contain information such as VAT number or contact details of the suppliers, which raises question mark on the suppliers too. In February 2015, the BoM’s credit monitoring department in its confidential report found the SVLL had term loans running into approximately Rs 2000 crore from 10-11 PSBs with balance of Rs 1500 crore and principle and interest overdue of Rs 80 crore.