Unraveling Bandhan Bank: NCGTC and EY Forensic Audits Send Stock Spiraling Down 7.2%
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Bandhan Bank, a private lender, has availed government guarantees on a portion of its loan book. As a result, the National Credit Guarantee Trustee Company (NCGTC) has appointed accounting firm EY to conduct a forensic audit on loans worth more than ₹23,000 crore. The audit aims to ensure transparency and fair practices in the bank's lending processes. The NCGTC is a state-owned entity that manages the government's credit guarantee trust funds and acts as a common trustee company. The audit is expected to shed light on the bank's lending practices and provide insights for better risk management.
The winning bidder of a tender floated by the National Credit Guarantee Trustee Company (NCGTC) must conduct an audit to check if a bank used two different government guarantees for the same set of loans.
He clarified that lenders could seek insurance coverage of up to 15% of the entire amount insured, or ₹3,100 crore in this instance (15% of ₹20,800 crore). The bank, he added, made claims of ₹2,200 crore in two installments, and the total amount was less than the scheme's maximum eligible limit.
As per the tender above, NCGTC has requested the auditor to investigate and identify instances of fake customers, window-dressing or evergreening of loans, ineligible portfolios for government schemes, and the origin of overdue repayments made by borrowers whose loans were part of the schemes. It is essential to note that these are broad areas mentioned in the tender and do not necessarily imply that NCGTC has found any deficiencies.
Sidharth Kumar, a senior associate at the law firm BTG Advaya, stated that the forensic audit could expose whether fake entities had taken micro-loans and how Bandhan Bank utilized the claims reimbursed by NCGTC.
Bandhan Bank has provided a detailed explanation to the stock exchanges after the National Credit Guarantee Trustee Company (NCGTC) conducted a preliminary sample audit. The bank reviewed its internal controls, policies, and procedures to ensure compliance with regulatory guidelines and mandates. Management of Singhania & Partners LLP mentioned that the audit process included verifying the bank's compliance with regulatory guidelines and mandates.
In the filing, the bank stated, "We would further like to clarify that this is not an audit of the bank initiated by the regulator. NCGTC has further decided to conduct a detailed audit for the CGFMU portfolio of FY21, and the same has been intimated to the bank.
The winning bidder of a tender floated by the National Credit Guarantee Trustee Company (NCGTC) must conduct an audit to check if a bank used two different government guarantees for the same set of loans.
This type of audit is usually done when there is suspicion about how a company has utilized funds, and it's conducted by regulators or investors. In November, NCGTC issued a tender requiring a forensic audit of a 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). Initially, the lender's name was not disclosed, but it was revealed later on demand from some bidders who wanted to avoid a conflict of interest.
We have emailed both Bandhan Bank and EY, but have not heard back immediately. The chief executive officer of Bandhan Bank explained that the bank obtained CGFMU acceptance during the Covid-19 pandemic in 2020–21. The portfolio for which the bank obtained the coverage was valued at ₹20,800 crore under CGFMU. Additionally, the bank disbursed an additional ₹1,950 crore under ESLGS, a Covid–era sovereign support program for specific sectors.
We have emailed both Bandhan Bank and EY, but have not heard back immediately. The chief executive officer of Bandhan Bank explained that the bank obtained CGFMU acceptance during the Covid-19 pandemic in 2020–21. The portfolio for which the bank obtained the coverage was valued at ₹20,800 crore under CGFMU. Additionally, the bank disbursed an additional ₹1,950 crore under ESLGS, a Covid–era sovereign support program for specific sectors.
The CEO of Bandhan Bank has reported that out of the total loans of ₹22,750 crore (₹20,800 crore plus ₹1,950 crore), customers have paid back approximately ₹19,000 crore until 2023. The remaining amount, which is around ₹3,600 crore, is now classified as a stress book in the bank's current portfolio. The bank has made a provision of more than 89% for this amount.
" On Monday, shares of the bank fell 7.21% to ₹200.65"
199.60 INR−16.60
12 Feb, 3:30 pm IST
As per the tender above, NCGTC has requested the auditor to investigate and identify instances of fake customers, window-dressing or evergreening of loans, ineligible portfolios for government schemes, and the origin of overdue repayments made by borrowers whose loans were part of the schemes. It is essential to note that these are broad areas mentioned in the tender and do not necessarily imply that NCGTC has found any deficiencies.
Sidharth Kumar, a senior associate at the law firm BTG Advaya, stated that the forensic audit could expose whether fake entities had taken micro-loans and how Bandhan Bank utilized the claims reimbursed by NCGTC.
Bandhan Bank has provided a detailed explanation to the stock exchanges after the National Credit Guarantee Trustee Company (NCGTC) conducted a preliminary sample audit. The bank reviewed its internal controls, policies, and procedures to ensure compliance with regulatory guidelines and mandates. Management of Singhania & Partners LLP mentioned that the audit process included verifying the bank's compliance with regulatory guidelines and mandates.
In the filing, the bank stated, "We would further like to clarify that this is not an audit of the bank initiated by the regulator. NCGTC has further decided to conduct a detailed audit for the CGFMU portfolio of FY21, and the same has been intimated to the bank.
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