A Sordid Affair

WHEN Indian Bank earned the dubious distinction of posting the highest-ever net loss in the history of Indian banking—Rs 1,336.40 crore for the year 1995-96, and accumulated losses of Rs 1,712.79 crore—it was the sordid culmination of a decade-long saga of gross mismanagement. The bank's net worth—Rs 1,061.92 crore—has been totally wiped out. And the man to blame for this sorry state of affairs: the bank's last, and longest-serving, Chairman and Managing Director (CMD) M. Gopalakrishnan, reputed to be close to Tamil Maanila Congress supremo G.K. Moopanar.

Gopalakrishnan, it is alleged, advanced huge loans to politically connected enterprises. Not only did the Finance Ministry ignore repeated warnings from the RBI, but extended the erring CMD's tenure as many as seven times, a clear signal to the RBI to overlook and pipe down. Gopalakrishnan obviously had some very influential friends.

Gopalakrishan worked against the cardinal principle of banking—borrow at a lower interest and lend at a higher interest. The short-lived BJP government must be credited for ordering a CBI probe into the losses incurred due to favouritism to one of Indian Bank's clients, East West Airlines. This triggered off a series of internal inquiries and the new chairman S. Rajagopal had to perform the unenviable task of reconciling as much as 38 per cent non-performing assets (NPAs). Fifteen sticky accounts in its zonal office in Madras account for an exposure of over Rs 1,250 crore (see box) . The CBI probe has so far discovered that East West used the bank for loans but chose other banks for operations; the value of security given against the loans was also inflated. Indian Bank extended an overdraft facility of about Rs 107 crore, while the board-approved limit was only Rs 17.26 crore. "In order to facilitate this overdraft provision, we were forced to borrow money from the call money market at phenomenal rates varying from 25 per cent to 60 per cent and lend at 18 per cent," says a top source. The bank has an exposure of over Rs 350 crore on MVR Exports, owned by NRI M. Varadarajulu, perceived to be close to Moopanar. The company has been doing badly, and many of its letters of credit have been devolved on the bank. 

When these irregularities were questioned soon after his retirement, Gopalakrishnan defended his every move. He said: "The MVR group has got export awards in the past. How could it be wrong to lend to them?" But, the most interesting question is how Gopalakrishnan managed to keep the ailment under wraps for so long. The answer: some of the biggest beneficiaries of his largesse were the journalists of Madras. Apart from lending Rs 4.5 crore for the journalist housing colony in south Madras, Gopalakrishnan donated generously to the Madras Press Club. He was constantly interviewed by the media and projected as a common man's banker.

According to the auditor's remark forming part of the published accounts, the quantum of provisioning for degradation in the quality of assets already identified as NPAs in the previous years and those assets which were actually NPAs but wrongly identified as Standard Assets in the earlier years works out to Rs 561 crore, more than half the total provisioning of Rs 1,112.72 crore. Indeed, 30 per cent of these NPAS are not just non-performing but non-existing. In 1993, RBI Governor C. Rangarajan issued a warning when Rs 102 crore worth of deposits had been eroded due to losses which had wiped out the provisions, reserves and the capital of the bank for the period 1992-93. As soon as Rajagopal took over the reins from Gopalakrishnan, he ordered the arrest of the growth of credit-deposits ratio. "Recover and survive" became the slogan. He constituted a treasury management committee to watch the funds position of the bank on a daily basis. Despite this, the average fort-nightly borrowing from the call money market did not come down to the desired level of less than Rs 700 crore, hovering around Rs 1,200 crore due to the prior commitments made by Gopalakrishnan.

Even before he could embark on the restructuring of the bank as per the Tata Consultancy Services recommendations, the balance sheet has come as a rude shock. It is very clear that the time to restructure came and went a long time ago and now it's curtains for the bank.