EY conducting forensic audit of Bandhan Bank loans worth ₹23,000 crore
Feb 13, 2024
The audit is being conducted at the behest of the National Credit Guarantee Trustee Company, the common trustee company that operates and manages the government’s various credit guarantee trust funds.
Big Four accounting firm EY is conducting a forensic audit on a portion of Bandhan Bank’s loan book backed by government guarantees, two people aware of the development said.
The audit was commissioned by the National Credit Guarantee Trustee Co. (NCGTC), a state-run entity that operates and manages various credit guarantee trust funds of the government. It will cover Bandhan Bank’s loans of around ₹23,000 crore.
NCGTC has asked EY to check whether the bank used two different government guarantees for the same set of loans, find fake borrowers if any; identify window-dressing or evergreening of loans, and check whether the loans were ineligible for the government schemes.
Experts said regulators and investors generally conduct such an audit when there is suspicion about the manner in which a company has used funds.
In November, NCGTC had floated a tender to conduct forensic audit of an unnamed bank’s loans covered by two credit guarantee schemes—the Credit Guarantee Fund for Micro Units (CGFMU) and the Emergency Credit Line Guarantee Scheme (ECLGS). It identified the lender after some bidders asked for it to avoid conflict of interest.
Emails sent to Bandhan Bank and EY remained unanswered till press time.
Shares of the Kolkata-headquartered bank fell 7.21% to ₹200.65 on Monday.
One of the people cited above said the areas mentioned in the tender document were broad, and did not necessarily mean that NCGTC had found such deficiencies.
Sidharth Kumar, a senior associate at law firm BTG Advaya, said the forensic audit could reveal whether fictitious entities had availed of micro-loans, and how Bandhan Bank used the claims reimbursed by NCGTC.
Other experts said such audits look beyond analysing loan portfolios.
“These include reviewing internal controls, policies, and procedures governing the bank’s operations, and verifying compliance with regulatory guidelines and mandates," said Ravi Singhania, managing partner, Singhania & Partners LLP.
Ratan Kumar Kesh, executive director, Bandhan Bank, told analysts on 9 February that the bank took CGFMU cover in 2020-21 during covid.
The portfolio for which the bank took the cover was worth ₹20,800 crore under CGFMU, and it disbursed another ₹1,950 crore under ECLGS, a covid-era sovereign support programme for select sectors, he said.
Kesh added that of the total loans of ₹22,750 crore ( ₹20,800 crore plus ₹1,950 crore), nearly ₹19,000 crore had been repaid by customers. “The remaining amount, which is around ₹3,600 crore as of December, is sitting as (a) stress book in my current portfolio and we are carrying a provision of more than 89% on that portfolio," Kesh added.
He explained that lenders could claim insurance cover of up to 15% of the total amount insured, or ₹3,100 crore in this case (15% of ₹20,800 crore). However, the bank claimed ₹2,200 crore in two tranches, he said, adding that the total claim was lower than the maximum eligible limit under the scheme.
In January, the bank told stock exchanges that NCGTC had conducted a preliminary sample audit, and based on its findings, Bandhan Bank had given detailed explanations and revealed the process followed in support of the claim.
“NCGTC has further decided to conduct a detailed audit for the CGFMU portfolio of FY21, and the same has been intimated to the bank. We would further like to clarify that this is not an audit of the bank initiated by the regulator," it said in the filing.
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