Syndicate Bank was one of the country's oldest and major commercial banks in which the Union government held nearly 85% stake. Syndicate Bank has now been merged with Canara Bank, another public sector bank (PSB).
However, Syndicate Bank's risk assessment and inspection reports from FY14-15 to FY18-19 and inspection report of FY18-19, shared by the Reserve Bank of India (RBI) under the Right to Information (RTI) Act with Abhinav Aggarwal, reveal why the government must have felt the urge to merge the lender.
In its inspection report dated 6 November 2019, RBI says, "The (Syndicate) Bank was mainly dependent on the government of India (GoI) for capital infusion. Due to low asset quality and unabsorbed losses, the ability of the Bank to generate capital internally was low. The capacity of the Bank to raise equity capital from the market was limited due to low market valuations."
As of 31 March 2019, the government stake in Syndicate Bank increased to 84.66% from 73.07% in March 2018, due to an infusion of Rs3,963 crore as capital during FY18-19. Further, as of 20 September 2019, out of 15 positions on the Bank's board, seven were vacant.
"In the absence of a full board, effective rotation of directors was not possible. The information technology strategy committee (ITSC) and risk management committee (RMC) did not have a member with expertise in IT and Risk Management, respectively. Inadequacy in assessments of business projections led to a breach in prompt corrective action (PCA) risk threshold for net non-performing assets (NNPA) ratio and return on assets (RoA) as on 31 March 2019 for the second fiscal year in succession (calendar year (CY): NNPA 6.16%, RoA -0,87; previous year (PY): NNPA 6.28%, RoA -1.05)," the report says.
Further, it points out that due to a lack of coordination between business and control functions, senior management of Syndicate Bank failed to take adequate steps to address vulnerabilities emerging from the incidents of frauds, quick mortality cases and fresh slippages. "Lack of coordination between business and control functions was also evident from delays in bank's response to supervisory queries, repeat deficiencies in the internal audit reports and non-compliance or non-sustenance to supervisory findings of the previous inspection of supervisory evaluation (ISE)."
In Syndicate Bank, there was a delay of four months in deciding on the authority to investigate whistle-blower complaints following the removal of such complaints from the purview of vigilance. "This resulted in whistle-blower complaints remaining unattended during the period."
According to RBI's inspection report, there was no coordination between vigilance and fraud management office in Syndicate Bank for timely identification of frauds through vigilance investigation. "It was observed that the deputy general manager (DGM) for vigilance, without the approval of the chief of internal vigilance, had taken a decision not to declare an account as fraud. The account was subsequently declared as fraud after considerable delay."
"No analysis of deficiencies was undertaken from policy or systems and procedures or risk perspective on the irregularities shared by the inspection department in respect of various loan portfolios, and instead, the same was merely forwarded to the zonal office (ZO) or regional office (RO) with no follow-up," it says.
According to RBI, customers were treated very badly at Syndicate Bank, and there was a deficiency in grievance redressal as well. The inspection report says, "The data submitted for total customer complaints during FY18-19 were also sourced manually. About 283 complaints received after October 2018 were not recorded in the centralised portal. Majority of the feedback received for resolved complaints were unsatisfactory or poor, which indicated a deficiency in the grievance redressal."
"The (Syndicate) Bank had no control over the departments and branches which were not registering the complaints in the centralised complaint management system. There were complaints regarding fraudulent Aadhaar enabled payment system (AEPS) transactions, which were neither resolved nor the liability of the customer established within 90 days, contrary to extant instructions," the report says.
Syndicate Bank also did not include card-related complaints received for 'on us' transactions which it claimed to resolve in a day, in its total customer complaints. It also excluded credit card-related complaints received directly at the card centre helpdesk from the data on total complaints. "The call centre of the bank did not register complaints for grievance redressal."
Further, the report says, "The nomination details were not updated in the core banking system (CBS) at the time of opening of accounts in all cases, but maintained in manual registers kept at branches. The nomination details were available in only 26% of the accounts in CBS till completion of ISE."
The senior management at Syndicate Bank did not even think it necessary to assess reasonableness or take approval from its board before revising SMS and locker rent charges during FY18-19.
The report says that Syndicate Bank also failed to follow the rules and guidelines of RBI for maintaining minimum balance in the customer account. "Minimum balance charges were fixed, depending on a range of shortfall rather than a fixed percentage levied on the amount of difference between the actual balance maintained and the minimum balance as agreed upon at the time of opening of account."
"No information notice was given to the customer in advance to make good the minimum balance amount before recovering charges. There were instances where the application of minimum balance charges was value dated to dates when there was no sufficient balance in the account leading to penal interest being charged from the customer on account of negative balance," the RBI report says.
It also highlights the issue of conduct governance in Syndicate Bank. It points out that there were vigilances cases against the senior management, like the chief information officer, general manager (GM) for credit, DGM (deputy general manager) for compliance, DGM for staff accountability and DGM for inspection. Though there was a delay in 481 cases during FY18-19 reporting frauds, staff accountability for the delay was examined in only 24 cases, it says.
According to the RBI report, there were also issues of conflict of interests in senior management and their assigned roles. It says, "The GM in charge of fraud management was also in charge of operational departments. Executive director (ED) in charge of business units was also in charge of risk management function, leading to conflict of interest."
On 23 September 2014, the Union government dismissed from service Sudhir Kumar (SK) Jain, who was chairman and managing director (CMD) of Syndicate Bank at that time. On 2 August 2014, he was suspended after central bureau of investigation (CBI) registered a case against him for allegedly accepting a bribe to hike the credit limit of some private companies bypassing rules. (Read: Syndicate Bank CMD SK Jain dismissed from service
On 1 April 2020, Canara Bank took control of Syndicate Bank. Syndicate Bank shareholders received 158 equity shares in Canara Bank for every 1,000 shares they held.
Here is the copy of RBI's risk assessment and inspection reports of Syndicate Bank as obtained by Mr Aggarwal under RTI...