Mumbai: Syndicate Bank on Tuesday said that it wrote off Rs.882.64 crore in the fourth quarter (the three months ended 31 March) because of fraud at its branches in Jaipur over the last four years.
The bank did this after it found out that a few hundred accounts had been opened, and loans of a few crore rupees given to each on the basis of fraudulent documents, such as fake or non-existent cheques, letters of credit and insurance policies.
According to a senior official at Syndicate Bank, the lender detected some signs of a fraud during the audit of its October-December quarter results that took place in January.
“We did some initial investigations and then immediately passed the matter to CBI (Central Bureau of Investigation). It has been investigating the matter ever since,” the official said, speaking on condition of anonymity as the investigation is not complete.
“More than 350 accounts were opened with these branches and loans worth Rs.2-2.5 crore each were availed using fake documents. The amounts were so small that our fraud management systems could not detect them,” the official added. He said that while the bank hasn’t classified these as bad loans yet, it has fully provided for them.
According to the master circular on classification and reporting of frauds released by Reserve Bank of India (RBI) in June 2015, banks are required to provide for the entire amount for which they are liable. The provision can be spread across a period of four quarters.
In March, CBI arrested some Syndicate Bank officials, income-tax officers, businessmen and a chartered accountant, as part of its investigations.
The federal investigation agency said in an 18 March statement that the fraud was estimated to be around Rs.1,000 crore in magnitude and involved “discounting of fake cheques and bills against fake letters of credit and arranging over-draft limit against non-existent insurance policies”. It added that the fraud was committed at Syndicate Bank’s Malviya Nagar and MI Road branches in Jaipur and another at Udaipur.
This is not the first instance of corrupt activities at Syndicate Bank. In August 2014, the then chairman and managing director S.K. Jain was arrested as part of a cash-for-loans scam.
Owing to the sizeable write-off, the bank reported a net loss of Rs.2,158.17 crore in the fourth quarter compared with a net profit of Rs.417 crore in the year-ago period. The loss widened from Rs.119.67 crore in the preceding three months.
The profitability of the bank was also dented by bad-loan provisions amounting to Rs.2,411.83 crore in the quarter ended 31 March, higher than Rs.875 crore in the preceding three months and Rs.715 crore in the year-ago quarter.
Net interest income, or the difference between the interest earned on loans and that spent on deposits, was Rs.1,462 crore, an increase of 2.7% from Rs.1,423 crore a year ago. Syndicate Bank’s other income was at Rs.842.28 crore in January-March, up 6% from Rs.794.43 crore a year ago.
The bank’s domestic advances rose marginally to Rs.1.68 trillion as on 31 March, an increase of 1.82% from Rs.1.65 trillion reported a year ago. Domestic deposits rose 4.33% from a year earlier to Rs.2.35 trillion at the end of financial year 2015-16.
Gross non-performing asset (NPA) ratio for the January-March period was 6.7%, higher than the 3.13% reported a year ago.
Gross NPA ratio for the October-December quarter was at 4.61%. Net NPA ratio for the fourth quarter was at 4.48% compared with 1.9% a year ago.
In a statement after announcing its fourth-quarter results, Syndicate Bank stated that it is in the process of effecting a turnaround and had appointed the Boston Consulting Group’s local arm to help it.
The plan is expected to help the bank “step up its business and sales plans, enhance profitability, unfold the potential of human resources and reduce the transaction costs of various products and services”, said Syndicate Bank in its statement.
According to the Syndicate bank official, the bank is also in the process of strengthening its risk management and fraud detection capabilities.