June 24, 2019
CA.
Milind Kale
Chairman
The
Cosmos Co-operative Bank Limited
Cosmos
Tower
Plot
No-6, S.No-132/B, ICS Colony
Ganeshkhind Road
Ganeshkhind Road
Pune
– 411007
E-mail: milind.kale@cosmosbank.in
Sir,
Sub: Compulsory
reference of fraud NPAs to Investigation agencies for criminality in Cosmos
Co-operative Bank.
This has reference to
my numerous requests in this regard made to you and your colleagues on the
Board of Directors of the Bank to come clean on the issues of certain fraud NPAs.
However, you have steadfastly refused to offer any explanation.
I had already given
you on 17/10/2018 the list of fraud NPAs known to me and informally admitted by
you, Mr. Krishnakumar Goyal and Mr. Mukund Abhyankar during some of the various
meetings.
However, you have
consciously chosen to sweep the list under the carpet presumably because of the
protection enjoyed by you from the corrupt
system. I cannot forget the list of contacts boasted before me by Dr.
Mukund Abhyankar in the presence of you and Mr. Krishnakumar Goyal, another
Director.
This boasting by Dr.
Mukund Abhyankar is not without any reason and is based on strong
circumstantial evidence in the form of well-established fact that RBI has
turned a blind eye to frauds in Cosmos Bank since 1990s and has so far been
reluctant to file criminal complaint despite humongous fraud NPAs tumbling out
of your closet during RBI inspection itself.
Let me go back to
some 30 years, i.e. year 1990 onwards.
In 1993, RBI had
carried out inspection of the Cosmos Bank w.r.t. NPA, provisioning, sanctioning
method, due diligence, etc. etc. The report brought out the outright
criminality existing in the bank.
I reproduce
hereinbelow extracts of some of the
scathing observations made by RBI in their 11 page detailed report bearing No.
UBD:Bom.LCW.3212/07/02/0249/93-94 dated 11/01/1994:
1.
The bank adopted a highly undesirable, rather
dubious practice of renewing loan limits
with enhanced amount in number of accounts ostensibly to camouflage the real position of overdue and irregular
accounts. Such accounts had all the weaknesses inherent in them …….. Even
fresh limits have been sanctioned to sister/associate concerns to recover
overdue in other accounts. If all these accounts are included as also other
similar in nature (which may be large in number) where irregular/overdue/
inoperative/overdrawn accounts were
regularized by resorting to such dubious methods, the provisioning
requirements may go up considerably. (page 1)
2.
Manik Attar & Bros. (at Laxmi Road
Branch): ….even this recovery of
Rs.15.67 lakhs was fictitious and was done by resorting to fraudulent practices
to show recoveries. (page 3)
3.
Based on the observations recorded above and
the larger accounts individually commented, it cannot be said that the Bank had
complied with our instructions on asset classification and income recognition
norms. The bank had even resorted to
fraudulent methods to show recoveries in certain accounts. (page 4)
4.
In view of the serious irregularities in the conduct of the loan portfolio of the Bank
and manipulations to avoid compliances…. (page 5)
5.
Further, a
study of Bank’s operations, practices and procedures in course of inspection
revealed a wide spectrum of gross irregularities, dubious practices and highly
objectionable fraudulent transactions. The loaning operations of the bank,
apart from being characterized by falsification of accounts and documents,
exhibited irregularities of much wider and serious dimensions involving
flouting of basic discipline and distortion of established/accepted banking
practices norms. Genuine recoveries and advances were a rare phenomenon in the
Bank. Old dues were renewed in a larger number of cases through sanction of
enhanced/additional limits in a routine manner without proper justification.
This however, did not stop at that. The dubious practices were extended to
other areas, viz., clearing adjustment, crediting loan account without receipt
of funds, artificially reducing overdue to void NPA norms etc. Recording such
transactions through fraudulent manipulative mechanism have serious
implications and the transactions in the books have in fact lost their
authenticity and genuineness. (page 5)
6.
The
operators who were operating with full knowledge and blessings of the higher
ups/top management have on the one hand damaged the atmosphere of genuine
recoveries, and on the other hand seem to have developed a vested interest in
the whole operations of fake recoveries/financing. (page 5)
7.
The
financial operations of the bank were found to be replete with multiple
distortions and irregularities having all the elements of fraudulent
transactions in a number of cases. The highly irregular ways invented by the
bank were unbecoming of a banking institution. (page 5)
8.
Pages 5 to 11: The RBI report contains
detailed post mortem of camouflage, subterfuge, manipulation and fraudulent
entries constituting fraud perpetrated on the Bank and falsification of
accounts of bank made in number of cases. The report outlines how these were
carried out with active support from Bank’s officials. The report exposed in
detailed how fictitious recoveries were shown in the books just by entering the
cheques purportedly deposited towards such recoveries without actually sending
them for clearing. RBI has exposed this fraud by cross checking with UCO Bank,
Kondhwa Housing Complex Branch and Bank of Maharashtra Khadki Branch, The Beed
District Co-op. Bank, Patoda Branch, Bank of India Karve Road, etc. The report
also exposed how bounced cheques were not debited to borrowers account so as
not to show them as defaulters.
9.
On page 7, RBI makes another scathing
observation: “To camouflage such
fraudulent transaction the bank was having an account titled ‘clearing
adjustment account’ only at its Laxmi Road branch where this account along with
other similar entries were parked. This ‘clearing adjustment account’ was
appearing only in the books of Laxmi Road branch and not in other branches
which was indicative of the fact that all such dubious entries were centralized
for originating ta one place and as such could be monitored effectively for
initiating cover-up operations.”
10.
The RBI also exposed how another account
‘bills purchased adjustment’ was dubiously used to help defaulters.
11.
On page 10, RBI details a massive fraud
played in the case of Poona Intermesh Pumps Limited – Lubricare Private Limited
- in March 1993 – September 1993. The amount was Rs.25 lakh, a substantial one
in 1993. RBI detailed how Cosmos Bank allowed unlawful overdraw of Rs.25 lakh in
cash credit account of Lubricare Private Limited. How the money was routed to
their own accounts in Pune Peoples’ Co-operative Bank Limited and how the
amount was brought back as repayment of loan to Pune Intermesh Pumps Limited.
This is patently illegal.
In a follow up letter
dated 20/05/1994, the RBI again
reiterated the harsh observations made by it in its report dated 11/01/1994. On page 4 of letter dated 20/05/1994, RBI observed: “The words used by us such as fraudulent,
dubious, falsification to describe the manipulative transactions undertaken in
various accounts with the blessing of the CFO and the senior officials at Head
Office in our letter are very apt and true.”
Despite these damning
observations on the criminality of the persons involved, no action was either
initiated by the Board of Cosmos Bank nor by the RBI by lodging FIR with
EOW/CBI as the case may be. The entire fraud was thus swept under the carpet.
Way back in 2010, I
had exposed how Cosmos Bank had given loans and advances of about Rs.84 crore
to Directors and their relatives in blatant violation of prohibition contained
in Master Circular of the RBI in this regard. Your Board lead by Dr Mukund
Abhyankar tried to hush up the matter in RBI and they had succeeded at CGM
level. However, my direct complaint to Dr. Subba Rao, then RBI Governor,
resulted in full investigation of my complaint and the complaint was
substantiated. RBI levied a penalty of Rs.5 lakh on the Bank for these unlawful
loans. I had asked Dr. Mukund Ahyankar, who was the Chairman of the Bank at
that time to lodge FIR against the concerned Directors for financial
misdemeanor, misappropriation of funds, criminal breach of trust and cheating.
He did not do so for reasons best known to him.
The now emboldened
Board of the Bank with protective cover from RBI and Central Registrar of
Co-operative Societies, New Delhi expanded their various acts of omission and
commission exponentially.
I refer to one case
that was closed in March 2011 in rather unlawful manner just to highlight the continuity
of frauds in Cosmos Bank despite indictment by RBI in 1993 report.
Loan
account No. 105212-210003 and 0377510037 in Ramdas Peth Branch, Nagpur: The
borrower company was extended a loan of Rs. 5 crore in 1997 against mortgage of
property. The borrower did not repay a single paisa in its loan account. The
accumulated interest was reportedly about Rs.1.30 crore. The fact that the
Company did not repay the loan for years and interest was overdue is sufficient
to declare the Company and its Directors willful defaulters. But considering
the political clout of the Company’s directors, you did not declare them
willful defaulters. RBI master circular
does not permit OTS to willful defaulters. Hence, by not declaring them willful
defaulters, you helped them escape the specific prohibition contained in the
2005 Master Circular of RBI with regard to OTS. The direct loss of Rs.1.30
crore suffered by the Cosmos Bank is entirely due to your above act of omission
and commission and you are liable to make good this loss of Rs.1.30 crore along
with interest thereon to the Bank from your personal properties jointly and
severally.
Lack of punitive
criminal action by RBI for such large scale manipulative transactions at the
cost of financial health of the Bank only seem to have emboldened the Cosmos
Board to perpetuate their various acts of omission and commission on a larger
scale. For example, what was done in Poona Intermesh Pumps Limited – Lubricare
Private Limited for Rs. 25 lakh in 1993 was repeated by you in Brainer Impex
Private Limited – MBPY Exim Private Limited for Rs.103 odd crore in 2012-13.
The criminality exposed by RBI in 1993 inspection is very much in deployment
and fully operational throughout the subsequent period till today. In fact the owner
of Brainer Impex and MBPY Exim would put to shame even the likes of Nirav Modi
and Vijay Mallya as even after open ‘loot
and scoot’, the man has not run away like them and is enjoying respectable
life in India. Your connivance and complicity is so apparent and visible that it
cannot be missed by anyone from the RBI and Statutory Auditors ‘unless they are
managed’.
During one of my
meetings with you, Dr. Mukund Abhyankar and Mr. Krishnakumar Goyal in your
cabin, I specifically asked you about blatant illegality and criminality in
loan of Rs.89.30 crores given to Kalanikethan Textiles and Jewels Private
Limited, Hyderabad that involved takeover of NPA of Rs.48.50 crore of HDFC
Bank. When I brought to your notice how can you sanction a loan of Rs.89.30
crore to take over the NPA of Rs.46.50 crore of another Bank, you vehemently
denied any knowledge that the amount was already NPA and Cosmos Bank has not
taken over any loan of any other bank. When I brought to your notice the specific
Board Resolution No. 237 dated 11/03/2014 and Resolution No. 13 (10/1) dated
20/03/2014, the only reaction shown by you and your other two colleagues was
the shock on your face that how I could know the specifics of your illegality
and fraud. This loan of Rs.89.30 crore turned into NPA within 6 months. No
recovery is possible as the property mortgaged as security are tins sheds of shop
constructed on land not belonging to the borrower and any of its directors. The
auction would not fetch even Rs.20,000/- as scrap value of tins. What is
perplexing is that this shady loan has the approval of the entire Board that
included two practicing CAs – yourself and Mr. Sunil Sabnis and half a dozen
Law Graduates/Advocates. It was thus a conscious decision. In fact all of the
62 accounts reported by me have Board’s approval as they fall only within Board’s
powers.
During my various
visits to Cosmos Bank HQ, Mr. Vikrant Ponkshe, then MD, had sheepishly admitted
to the prevalence of these tactics even till that time. He even admitted that
realistic gross NPA would be about 28% and may go up to 35%. Mr. Vikrant
Ponkshe, then MD even told me that all these loan proposals go directly to the
Board from the desk of Mr. Suhas Gokhale, then Jt. MD and present MD bypassing
him. Incidentally, Mr. Suhas Gokhale is responsible for post disbursement
monitoring.
The loot of Bank’s
money by resorting to, if I have to borrow from RBI’s vocabulary used in the
report referred to above, fraudulent,
dubious, falsification to describe the manipulative transactions undertaken in
various accounts with the blessing of the CFO and the senior officials at Head
Office, etc. etc. has continued since 1990 unabated and quite nonchalantly.
I had called upon you
as a shareholder of the Bank to initiate criminal action against all those
involved in various fraud NPAs amounting to Rs.2,916.89 crore as communicated
to you vide my various earlier letters.
I had requested you to
inform the shareholders:
1.
Have you referred these accounts that have
become NPAs within a short span of 4 months to 13 months with nil or negligible
collateral security to Investigation agencies like CBI/EOW, ED/DRI?
2.
If you have referred to Investigation
agencies, kindly provide the details of such reference.
3.
If you have not yet referred these accounts
to Investigation agencies as is mandated by the Finance Ministry, kindly
provide the lawful, logical and palatable reasons for the same.
As expected, you have
neglected to give any explanation.
For reasons best
known to you and your colleagues in the Board, you have so far steadfastly
refused to take any cognizance of the criminality involved in the affairs of
the Bank. Probably, Mr. N S Vishwanathan, who has been elevated to the post of
Dy. Governor having jurisdiction over Co-operative Banking regulation and who
has reportedly been your savior throughout since his employment in RBI in
various capacities till he was elevated to the present post as personally told
to me by Dr Mukund Abhyankar and Mr. Vikrant Ponkshe, is an instrument of some
sort of immunity to the Cosmos Board members. Else, the same modus operandi
(with some refinement and increased amounts) would not and could not have been
in operation since 1990 till date without any fear of law.
However, I wish to
inform you that criminal offence is a continuing offence and does not get
time-barred like any civil offence.
I therefore once
again call on you vide this letter to file FIRs in all cases of fraud NPAs
including 62 cases amounting to Rs.2,916.89 crore analyzed by me without any
further delay. If you are unable to do so, kindly at least be good enough to
communicate to me within 15 days of the date of this letter, the lawful,
logical and palatable reasons of your inability to initiate any action, so that
I can take this matter to the appropriate agencies in my efforts to cleanse this
Bank of corrupt elements and their practices under ‘shwatchh bhaarat abhiyaan’
at your risk as to the cost and consequences thereof, which you please note.
Thanking you.
Yours faithfully
Kishor
Satwick
CC:
1.
Shri R. L Sharma, Chief General Manager,
Department of Cooperative Bank Supervision, Reserve Bank of India, Central
Office, C-9, 1st floor, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051,
E-mail: dcbscocgm@rbi.gov.in – for
initiating immediate action by dismissal of entire Board, appointing the Board
of Administrators for thorough clean-up of the Bank and filing criminal
complaint for a thorough investigation. If you are unable to do so, kindly at
least be good enough to communicate to me within 15 days of the date of this
letter, the lawful, logical and palatable reasons of your inability to initiate
any action, so that I can take this matter to the appropriate agencies in my
efforts to cleanse ‘corrupt system’ under
‘shwatchh
bhaarat abhiyaan’.
