Zero Accountability

HAVING exhausted nearly all its resources in propping up its bottomline in 1995-96, Peerless General Finance & Investment Co has declared a net loss of Rs 30.82 crore for 1996-97. In the process, its free reserves have been totally wiped out and it has started to eat into its revaluation reserves. The company has failed to implement almost all of the recommendations made by the RBI in its interim report of March 31, 1993, to bring some order and accountability in the company.

The loss for the year would have been huge if some of the items not provided for—but not cleared by the auditors—were charged. And the Bank has come down hard on Peerless for this non-compliance. The auditors have reserved their comments about the recoverability of about Rs 150 crore which has not been provided for in the profit and loss accounts. They are also non-committal about the management's decision to provisionally write back Rs 210 crore as surplus in the deposit holders fund. Consequently, the loss for the year has been reduced by this amount.

To its credit, the Peerless management has reduced commissions and other field expenses to Rs 56 crore from Rs 92 crore. The operating loss during the year declined to Rs 78 crore from Rs 118 crore. But this does not take into account Rs 426 crore of loans and advances not provided for and about whose recoverability the auditors decline to comment. Peerless has also not provided for the fall in the market value of some of its quoted investments by Rs 209 crore as it feels this erosion in value is temporary.

But the auditors do not share the management's optimism. In 1995-96, following a Supreme Court judgement, Peerless was saddled with an accumulated liability of Rs 771 crore for overcharging depositors over the years. The company has, however, avoided treating this as a liability by showing it as a Deferred Obligation to be charged in future years in a phased manner. In the year under review, Rs 120 crore was charged as a deferred obligation and is yet to be recognised in the profit and loss account.

Following examination by an actuary, the management has concluded that as on March 31, 1997, an excess of Rs 233 crore had been shown as owed to the certificate holders. Consequently, it has provisionally written back Rs 210 crore which reduces the loss for the year by this amount. The auditors are unable to express any opinion on the adjustment, including its accuracy, in the absence of full certificate-wise details.

Unable to shrug off any longer the disastrous performance of its subsidiaries, Peerless directors have stated that the company shall slowly dissociate itself from all its subsidiaries other than the ones in the financial sector. These subsidiaries have bled Peerless over the years; some say that the wounds were inflicted by vested interests. Loans and advances to subsidiaries include Rs 58 crore to companies which have a negative net worth due to continuous losses.

Peerless has also invested about Rs 16 crore in these companies' equity. The RBI has noted that loans to subsidiaries were granted without proper appraisal of the recipients' needs, existing activity, projects in hand and expansion plans. Stipulated interest on loans were arbitrarily waived and funds routed through personal accounts of officials. Company watchers feel that Peerless' dealings with its subsidiaries warrants a close scrutiny.

The RBI is also unhappy with the company's Suspense and Subscription deposits. These deposits represent unreconciled collections. Peerless says that necessary adjustments will be made on receipt of the required details. But the RBI maintains that the company's balance sheet does not reflect a true picture of the total deposit liabilities because deposits shown under subscription and suspense accounts were not treated as a liability to depositors and the funds were utilised in business, mainly investments. The Bank had asked Peerless to reduce these deposits but they increased to Rs 47 crore from Rs 42 crore in fiscal year 1994.

 This is so because, according to the RBI, the company's field staff lack the necessary education to instruct depositors—who are themselves ill-educated—regarding correct documentation. However, observers say that it is in the company's interest to accumulate funds in these deposits to invest it outside the stipulated investment norms. Peerless is legally bound to invest 80 per cent of the depositors' funds in nationalised banks and RBI-approved securities. But Peerless has been flouting this norm and its investments in banks and approved securities have fallen well below 80 per cent.

When Peerless' 64th annual general meeting is held in Calcutta on September 17, it is unlikely to be the hush-hush affair of the past because the company is now attracting considerable public attention. Unfortunately, instead of acknowledging past lapses and drawing up plans for a revival, the Peerless management construes any criticism as an attempt to undermine a Bengali-managed organisation, conveniently forgetting that most of the depositors are also Bengalis. Largely poor and inarticulate Bengalis whose investments must be protected.