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Nedungadi Bank asked to follow RBI directives

George Smith Alexander

The Reserve Bank of India did not stop at removing the former chairman of Nedungadi Bank AR Moorthy. It also issued a set of directives on the running of the bank.

RBI has issued a list of directives on the functioning of the board of directors, fund management, advances, internal control, staff accountability and also progress report.

The RBI, in its report to the Joint Parliamentary Commission, has said the bank was placed under quarterly on-site monthly and even daily monitoring in certain respects due to grave irregularities noticed in its functioning.

The RBI has debarred Moorthy from taking part in management of any banking company for a period of five years.

It also removed broker director RK Banthia from the board of the bank. The board of directors had approved a scheme of purchase and sale of shares taking advantage of price differentials between the National Stock Exchange (NSE), Bombay Stock Exchange (BSE) and other bourses.

Despite the objection of RBI nominee on the board, the bank engaged three stock brokers-- Harvest Deal Securities Ltd, First Custodian Fund and Shrikant G Mantri.

The balance sheet of the bank as on March 31, 2000, had shown outstanding in respect of the three brokers to around Rs 945 million under other assets although these were advances to the brokers.

RBI had taken up the wrong classification of head in balance sheet with the Institute of Chartered Accountants of India for taking appropriate action against the statutory auditors of the bank.

RBI has asked the bank to take immediate steps to reduce the number of loss making branches. It has also asked the directors to refrain from direct involvement in the day-to-day functioning. The board has asked to achieve the capital adequacy ratio (CAR) of 9 per cent. The CAR of the bank was at (-)0.57 per cent as on December 31, 2000.

The board will have to monitor on a monthly basis the conduct/ recovery of loans/ advances sanctioned to firms/ companies, which are related to the past or present directors of the bank.

The board also will have to ensure that all available avenues of recovery have been exhausted before considering compromise proposals/ writing off of bad or doubtful assets.

The central bank has also directed Nedungadi Bank not to discount accommodation bills.

"At any point of time, the overall advances of the bank should not exceed Rs 8.79 billion which was the same as on July 31, 2001," said RBI.

It has also directed the bank to take immediate steps to fix accountability and award necessary punishment in respect of advances, which have become NPAs as also frauds or other cases where financial loss has been accrued to the bank.

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