Thuggery at Cosmos Bank (14/08/2018)

 

Euro Multivision Limited:

 

Term Loans of Rs. 47.19 crore and Cash Credit facility of Rs.16.65 crore through Vile Parle East Branch, Mumbai turning into NPA as ‘quick mortality’ – action against delinquent directors, employees and others.

 

NPA balance as on 31/03/2017:

 

State Bank of India: Rs.278.59 crore (inclusive of interest of Rs.154.67 crore)

Cosmos Co-operative Bank Limited: Rs.173.27 crore (inclusive of interest of Rs.94.11 crore)

 

The borrower company Euro Multivision Limited was sanctioned term loan and cash credit facilities as follows:

 

Sr. No.	Type of Facility	Account Number	Amount of Loan	Date of sanction
1	Term Loan	01760010569	33,75,00,000/-	18/03/2009
2	Term Loan	01780180523	10,50,00,000/-	24/06/2010
3	Term Loan	01780180532	2,94,00,000/-	24/06/2010
4	Cash Credit	01760010569	16,65,00,000/-	15/05/2010

 

All these loans became NPA on 31/03/2011 (Default since January 2011) and joined the list of “quick mortality’ borrowers of Cosmos Co-operative Bank Limited.

 

During the very first year, i.e. FY 2010-11, the Statutory Auditor has qualified his audit report that the Company has defaulted in repayment of loans to Cosmos Co-op. Bank Limited to the tune of Rs.2.35 crore.

 

In the very first year after the disbursement of such huge loans, the Company incurred a loss of Rs.29.35 crore. The loss in the immediate next year was Rs.99.37 crore and the net worth was completely wiped out. This gives rise to a reasonable suspicion that the money has been laundered to some other company or destination and the bank should have investigated it immediately.

 

The borrower company was not repaying the term loan. The defaults in repayment of term loans were committed right from the end December 2010, i.e. within six months of disbursements and became NPA within 9 months of disbursement. This is also reported by the statutory auditor. This account is another case of “quick mortality”.

 

Mr. Nenshi Shah holding 21.23% shares and Mr. Rayshi Shah holding 20.69% shares resigned from the Board of Directors on 14/03/2012 and 01/01/2012 respectively. Incidentally, this ‘loot and scoot’ tactic seems to be a unique feature of the borrowers of Cosmos Co-op. Bank Limited – do a vanishing act from the Board immediately after converting the loan into NPA.

 

The undisputed facts are as follows:

 

The Term Loan of Rs. 33,75,00,000/- from The Cosmos Co-op Bank Ltd, carrying interest @ 13.00% p.a., subject to revision at the bank's discretion based on the changes in base rate, is repayable in 60 monthly installment of Rs.76,80,000/- each along with interest. The principal outstanding is due since January 2011 and interest is outstanding since March 2011.  

 

The Term Loan of Rs.10,50,00,000/- from The Cosmos Co-op Bank Ltd, carrying interest @ 13.00% p.a, subject to revision at the bank's discretion based on the changes in base rate, is repayable in 60 monthly installment of Rs.23,89,073/- each along with interest. The principal outstanding is due since January 2011 and interest outstanding is due since April 2011.

 

The Term Loan of Rs.2,94,00,000/- from The Cosmos Co-op Bank Ltd, carrying interest @ 13.00% p.a, subject to revision at the bank's discretion based on the changes in base rate, is repayable in 60 monthly installment of Rs.6,68,940/- each along with interest. The principal outstanding is due since January 2011 and interest outstanding is due since April 2011. 

 

In about 6 months, the borrower gleefully defaulted and as per norms, the entire term loan of Rs.47.19 crore became NPA as on 31/03/2011. 

 

In spite of this financial misdemeanor, the Bank allowed the borrower to overdraw its cash credit amount by Rs.16.29 crore, i.e. almost 100% over the sanctioned limit of Rs.16,65 crore during the FY 2011-12. The cash credit as on 31/03/2012 was Rs.32.93 crore as against sanctioned limit of Rs.16.5 crore. This conduct is in blatant violation of the RBI rules and regulations in this regard. This could not have been possible without active help from the influential members of the Board, if not all the members of the Board.  

 

The chances of recovery are absolute Zero.

 

The loans of such magnitude could not have been sanctioned without the permission of the Board of Directors. The role played by the Board members to disburse such quick mortality loans and the proximity of the borrower to any Board member need to be investigated.

 

The Directors of the bank have a fiduciary relation with the shareholders of the Bank. The Directors are supposed to work within the framework of law and well established prudent banking norms. Any deviation from these norms by the Directors would constitute fraud and criminal breach of trust of the shareholders of the bank. The Directors are liable to make good the loss suffered by the Bank due to mala fide and fraudulent acts from the personal assets of such delinquent directors and employees.

 

Other quick mortality NPAs from this Euro Group, viz. Euro ceramics, Euro Merchandise, Euro Décor etc. etc. are dealt with in the following annexures. I must say, had Vijay Mallya consulted the brains behind this group, he would not have had to flee the country. And had the IDBI Bank’s former Board members and senior executives consulted the Board of Cosmos Bank, they would not have found themselves inside the lock up.

 

About Rs.81 crore odd plus interest are locked as NPA in this one account where deviation from prudent banking practices and absolute lack of due diligence is prima facie visible, giving rise to criminality. I am concerned how many skeletons are going to tumble out of the closets of the Cosmos Bank with reference to this group called Euro. Factors such as disbursement of huge amounts by violation of prudent banking norms/practices and without taking adequate collateral security, gross negligence and total absence of due diligence and quick mortality do point towards serious acts of omission and commission bordering on fraud and criminal conspiracy. In my sincere opinion, this is another fit case for an ‘in-custody’ police investigation of the concerned officials of the Bank.

 

This defaulter has also played truant with ever obliging State Bank of India, the largest contributor towards NPAs.

 

In my capacity as the shareholder of the Cosmos Bank, I had confronted Mr. Vikrant Ponkshe the then MD and CA Milind Kale, the Chairman of the Cosmos bank on the following points:

 

• What are the details of the project for which the bank had disbursed Rs.47.19 crore as term loan and Rs.16.65 crore as cash credit Euro Multivision Limited.
• Copy of the appraisal reports.
• Who sanctioned the loans – a particular director of the high powered Loan Sanction Committee of the bank or the entire Board of Directors?
• Who allowed the borrower to overdraw its cash credit amount by Rs.16.29 crore, i.e. almost 100% over the sanctioned limit of Rs.16,65 crore even after the account becoming NPA? The cash credit as on 31/03/2013 was Rs.32.93 crore as against sanctioned limit of Rs.16.5 crore.
• The reasons recorded by the Board or the concerned Director to allow such huge overdraw even after the account becoming NPA.
• What was the principal security?
• What was the collateral demanded while sanctioning the loan?
• What was the collateral actually taken – i.e., mortgage documents executed – before disbursing the loan?
• What is the value of such collateral property mortgaged with Bank by the Company?
• Whether the title search of the immovable property mortgaged by the borrower was done by any qualified Advocate? If ‘Yes’, kindly furnish me the copy of the title search report.
• Kindly furnish me the date of sanction, schedule of disbursements, the date when the account became NPA, the year in which Bank wrote off this loan in the books of account to clean the Balance Sheet and the steps taken by the Bank under the Securitization Act, 2002.
• Whether the bank has fixed responsibility of this bad loan which is prima facie mired with violation of banking norms and ordinary prudence, on any director or employee? If yes, the details of the same. If no such responsibility is fixed on the delinquent director or the employee, the lawful and palatable reasons for the same should be given.
• Do you have internal vigilance department like any other Bank?
• If yes, have you referred this NPA account to the internal vigilance department to fix the responsibility on the delinquent director and/or employee?
• Have you carried out inspection to ascertain that money has not been utilized for the purpose other than the one sanctioned and that there is no money laundering?
• If Yes, kindly furnish me the copy of such inspection report.
• If you have not done any inspection, kindly state the reasons for not doing such inspection.
• If the account is classified as NPA, kindly tell me under which category is classified – Sub-standard, Doubtful or Loss. This is a classic case of quick mortality, where everyone connected with the proposal comes under the scanner. This includes Directors, Managers, concurrent auditor, internal auditor, statutory auditor and statutory internal inspection officer, if any.
• Please provide me a report on the present status of realizable value, if any, of the securities and to what extent it is adequately secured by flawless documentation.
• If you have filed recovery suits against the principal borrower and the Guarantors, status of these cases.

As is the practice by all Bankers, no reply was given. However, they admitted that it is a total loss to the bank.

 

Who is now responsible for this criminal negligence? Depositors? Or the tax payers whose money is used to work out bailout packages to PSU Banks?

 

The loot of depositors’ money continues.