Bombay Mercantile Coop Bank mired in controversial dealings, while regulators watch silently; whistleblower agitated about the bank's future
Investors, employees and shareholders are working overtime to draw attention to the controversial dealings at Bombay Mercantile Cooperative (BMC) Bank but their appeals to every regulator, including the Reserve Bank of India (RBI) and the Registrar of Cooperatives (ROC) seems to fall on deaf ears.
Only in January 2016, Moneylife wrote about a new management
being installed at BMC Bank, which seemed determined to ensure a clean-up. But management wrangles ensured that they were thrown out and the previous regime, whose operations came in for action by the RBI and Central ROC is back in the saddle. Worse, although the RBI has imposed stringent conditions on the banks' operations in November 2015 and stopped the bank from sanctioning fresh loans, whistleblowers allege that the management is alienating assets and weakening the bank, which employees over 2,300 persons.
There was a meeting of the Bank's Board on 16 May 2016 in which Zeeshan Mehdi and Mohammad Shah Alam Khan were elevated as Chairman and Managing Director, respectively. These directors had been disqualified by the RBI and Central ROC in January 2016 but have still been re-elected. The allegations against these officials, backed by documents provided by whistleblowers are indeed startling. One of the most egregious ones is that Punjab National Bank and Canara Bank have filed criminal complaint against Mr Mehdi, Mr Khan and Salauddin Najmi, Director of BMC Bank, for criminal conspiracy, cheating and criminal misconduct. Surely, this is something that would attract RBI's attention?
Here are some of the other allegations levelled against the current top management of BMC Bank by whistleblowers and shareholders.
1. The Bank's Branch Manager at Lucknow allegedly issued bank guarantee of Rs54 crore against six allegedly fake FD receipts of Rs9 crore each. Instead of filing a criminal case and further investigation, the Branch Manager was allegedly put under suspension.
2. Mr Mehdi, the newly selected Chairman, and his partners allegedly had a credit facility of Rs12 crore from BMC Bank's Lucknow branch, which became stagnant in November 2014. In order to allow Mr Mehdi contest Bank's election held in January 2015, it is alleged that two loans of Rs7.5 crore each were sanctioned to his friend from Lucknow, without following RBI norms and without proper security. It is alleged that at that time, this loan of Rs15 crore was sanctioned to Mr Mehdi's friend/partner to adjust his NPA account for protecting his directorship at the Bank. However, it is alleged that these loans of Rs15 crore too have slipped in to NPA.
3. The Bank has allegedly invested Employees Provident Fund money in unlisted companies, thus violating all extent norms of Commissioner of Provident Fund. The investments have allegedly incurred losses of lakhs of rupees.
4. There are allegedly about more than Rs50 crore tied up in the Bank's quick mortality accounts.
5. Mr Khan, the Bank's MD, has allegedly transferred tenancy rights of the Bank properties (especially at the head office building) without depositing any amount in the Bank's account.
6. There are allegations that Mr Khan, the MD, had post facto sanctioned advances worth Rs15 crore to various parties without approval from the Board of Directors. Mr Khan, as the Bank's MD has power to sanction loans of Rs50 lakh only and for any loan above this, he is required to obtain approval from the Board.
7. For FY2013-14 and FY2014-15, the Bank's MD allegedly did not provide for gratuity and leave fare concessions in the balance sheet for showing cash profits, which was misleading to depositors of the Bank as well as regulators.
8. Recently, there was a case filed against Mr Khan, the Bank's MD at Pydhonie Police Station in Mumbai on alleged charges of fraud and cheating.
Our emails sent to both Mr Mehdi and Mr Khan remained unanswered till writing this story. We will incorporate their view, if any, as and when we receive it. We have also forwarded these findings to RBI but have not heard from the regulator either.