RBI scrutinises BoI accounts
Our Banking Bureau
10 November 2001

Mumbai: Going by the initial findings of a special scrutiny of Bank of India (BoI) accounts by the Reserve Bank of India (RBI), it looks like BoI was responsible for causing harm and losses to Tata Finance.

Besides BoI, the RBI is also conducting an enquiry into the operations of Tata Finance and Nishkalp, both of which are non-banking finance companies and fall within the purview of the central bank.

The investigations concern issues like circular transactions undertaken by the two to show that they had complied with RBI’s prudential norms, ascertaining the exact losses to Tata Finance through such transactions and audit of the accounts of the two companies.

According to the initial findings of the RBI, BoI
1) Lent as much as Rs 845 crore to Tata Finance’s subsidiary, Nishkalp, between June 2000 and March 2001 through four short-term loans.
2) Its entire loan was disbursed through one branch, Mumbai Corporate Banking Branch.
3) The loans provided by the manager of the branch were beyond the delegated powers of the branch manager.
4) Grossly violated banking norms. For example, the loans received by Nishkalp from the BoI branch were utilised to create fixed deposits accounts in the branch in the names of third parties. The loans were then labelled as loans against these fixed deposits.

While advancing loans against fixed deposits are a normal business practice, creating fixed deposits from monies received from the branch itself and then labelling loans extended as loans against such falsely-created fixed deposits is a clear violation of banking norms, says the RBI.

Nishkalp’s modus operandi, according to the RBI, was to raise funds from BoI and pay back Tata Finance, from which it had taken short-term inter-corporate deposits. The funds raised through BoI were backed by comfort letters issued by Tata Finance, which was being repaid by Nishkalp through funds borrowed from BoI.

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