When Punjab and Maharashtra Cooperative Bank (PMC Bank) scam hit the headlines, the Reserve Bank of India (RBI) appointed JB Bhoria, as the administrator of the scam-hit bank on 23 September 2019. He was the regional director of RBI for Maharashtra and Goa till 2013.
What can one expect from Mr Bhoria, in terms of helping re-start the scam-hit PMC bank? It turns out that this is not the first time that he has been appointed as administrator. His previous stint as administrator was not good, even when he headed a bank that had no financial problem.
In 2014, the RBI, in its wisdom, decided to place the Nashik Merchant’s Cooperative (Namco) Bank under an administrator. At that time it was emphasised that Namco Bank was not facing any financial problem. The action related to other issues.
The Bank’s performance declined during Mr Boria’s tenure. According to current chairman Sohanlal Bhandari, the gross non-performing assets (NPAs) of Namco Bank allegedly increased by a whopping 40% to Rs318.67 crore during the administrator’s tenure.
Mr Bhandari told Moneylife in a telephonic interview, "the less said the better about the tenure of the administrator at our bank. After appointment of the administrator, we expected effective and prudent management at the bank. However, in his (Mr Bhoria's) tenure, the financial position of Namco Bank became weak. When Mr Bhoria was appointed as administrator, our bank had a gross NPA of 4.10% and zero net NPA. However, as on 31 December 2018, our gross NPAs increased by 38.38% to Rs318.67 crore while net NPA increased to over 20%."
"During Mr Bhoria's tenure, several unqualified borrowers obtained loans on inflated valuation and at higher loan-to-value ratio. A property valued at Rs1 crore was shown as valued at Rs1.25 crore for the loan purpose. In addition, the bank sanctioned a loan of 70% of this inflated value against the 50% norm that was practiced before appointment of the administrator. Mr Bhoria also pressured bank officials to sanction these inflated loans," Mr Bhandari alleged.
According to Mr Bhandari, the new board of directors and bank staff took several measures to reduce the NPAs. Namco Bank has now reduced its gross NPA to 28.94% to Rs248.89 crore as on 31 March 2019, he added.
Mr Bhoria, however, says, statistics do not always show clear picture, especially in banking. “During my tenure at Namco Bank, I took efforts in increase reserve funds by about Rs200 crore. You can see there is a rise in the bank’s capital to risk (weighted) assets ratio (CRAR) and reserve fund that indicate increase in strength and growth of the bank. Also on sanctioning loans, we have followed all the norms and the decisions to sanction loans were taken by the loan committee after proper scrutiny.”
The RBI had appointed Mr Bhoria as administrator in January 2014, after finding some lapses in management practices at Namco Bank. According to a reply received by Girish Mittal, under Right to Information (RTI) Act, Mr Bhoria was appointed as administrator for one year at a fixed monthly remuneration of Rs1 lakh plus Rs25,000 as allowances to be paid by Namco Bank.
However, Mr Bhoria remained as administrator for about five years. He says, “The decision (to continue to have administrator) was taken by RBI. When they (RBI) asked me to step in, I joined Namco Bank. When they asked me to step down, I handed over the reins to the new board of directors.”
According to Mr Bhandari, who was chairman of Namco Bank before the appointment of an administrator and is current chairman as well, appointment of an administrator by RBI was only on technical ground and had nothing to do with the functioning of Namco Bank, which was in a sound financial health.
He says, "Namco Bank used to donate some money to a charitable trust on regular basis. Some of our directors were also trustee of a charitable trust that had received Rs23 lakh as donation from Namco Bank. When it was pointed out to us by RBI during the audit, we took necessary steps, including reversing the transaction. However, RBI went ahead with its action and appointed Mr Bhoria as administrator."
On 17 July 2013, the RBI imposed a penalty of Rs5 lakh on Namco Bank for violation of its instructions and guidelines. In a release at that time, the central bank had said
, “Inspection of the bank with reference to its position as on 31 March 2012 revealed that the bank had persistently violated section 6(1) (j) of the banking Regulation Act 1949 (AACS) as it had set up a trust in the name and style of NAMCO Charitable Trust and the trust had seven Trustees, who were also Directors of the bank and the purpose of the trust was to run a medical college cum hospital for general public. Thus there was evidence of recurrence of violation of section 6(1) (j) of the Banking Regulation Act 1949 (AACS). After considering the facts of the case and bank’s reply in the matter, the Reserve Bank of India came to the conclusion that the violations were substantiated and classified as ‘Major’ which warranted imposition of penalty.”
In January 2019, the Pragati panel led by Mr Bhandari won all 21 seats during the election at Namco Bank. Mr Bhandari returned as chairman of the bank after a gap of four years.
(Pragati panel members after the election in January 2019)
Established in June 1959, Namco Bank has over 81 branches in three states, Maharashtra, Gujarat and Telangana.
As on 31 March 2019, Namco Bank had total deposit of over Rs1410 crore while loan and advances were about Rs860 crore. The Bank reported a rise in loss of 26.78% to Rs32.80 crore from Rs44.81 crore reported during previous year.
Given Mr Boria’s record with a financial healthy bank, what can on expect from him in the extraordinarily challenging situation at PMC Bank?
PMC Bank, with 137 branches and deposits of over Rs11,000 crore (at end of March 2019) is the victim of a massive scam, where the former managing director Joy Thomas allowed over Rs6,500 crore to be lent to the HDIL group by creating 21,049 fake accounts.
HDIL accounted for nearly 73% of the bank's total loans when it was put under administration and there was a clear element of conflict of interest, given that two-time chairman Waryam Singh was a part of the promoter group at HDIL.