RBI files case against former NBIL chief

K Rajan

Kozhikode, May 22: THE Reserve Bank of India (RBI) has filed a criminal case against Mr AR Moorthy, who was removed as chairman and CEO of Nedungadi Bank Ltd on May 4 by the Central bank for landing the century-old bank in the worst ever crisis in its history. RBI’s move comes as part of a wider design to bring the commercial banks in the country under the effective control of Banking Regulations Act (BRA), 1949.

As per the affidavit submitted to the judicial first class magistrate court here on Tuesday, RBI has stated that the bank, under Mr Moorthy, had violated prudential norms in regard to the banks’ exposure to arbitrage deals. The main charges levelled against Mr Moorthy are that in contravention of the provisions of the BRA, Mr Moorthy had been responsible for the violation of the norm that a bank can make disbursements only upto 5 per cent of the incremental deposits of the previous year.

Although the bank’s maximum exposure limit for investing in equity shares and other equity-related investments was Rs 17.41 crore during the period from September 1999 to March 31, 2000, it overshot by Rs 77.72 crore. The bank’s incremental deposit as on March 31, 1999, was Rs 348.30 crore. Thus, at the end of the fiscal 1999-2000, the aggregate exposure to arbitrage stood at Rs 95.13 crore (Rs 94.52 crore for arbitrage transaction and Rs 61 lakh for regular investments in equities).

Yet another lapse on Mr Moorthy’s part had been the violation of RBI directive that loans exceeding Rs 25 lakh should not be granted to any firm in which any relatives of the chairman, managing director, director, are interested as director, partner and guarantors. On the other hand, the three broking firms — Srikant G Mantri, The First Custodian Fund (India) Ltd and Harvest Deal Securities Ltd — were entrusted to conduct arbitrage trading in shares. Besides, his failure to obtain the permission of the board of directors before sanctioning loans aggregating Rs 25 lakh and above, Mr Moorthy has also made disbursements by way of oral and telephonic instructions.

This was “beyond his discretionary powers and in gross violation of the direction,” issued by RBI. Further, the bank, under him, had not made proper disclosure in the balance sheet in order “to cover up the mishandling of funds.” This, again, was despite the RBI circular issued to banks regarding the scope and classification of “other assets.”

However, NBL’s annual balance sheet for March 31, 2000, showed outstanding dues of Rs 21.10 crore under the head “other assets.” Though, the bank had recovered an amount of Rs 73.42 crore out of Rs 94.52 crore disbursed to the three broking firms, the repayments were made over a period of one year.

Thus, the RBI has stated that the bank has to get back another Rs 8.72 crore by way of interest charged on delayed payments upto December 31, 2000.

Mr Moorthy was removed by RBI on May 4 after a personal hearing, invoking provisions of section 36 AA of BRA, 1949. In the order issued by RBI executive director KL Khetar Perol removing Mr Moorthy, it was stated that the bank had not maintained transparent accounting practice. The apex bank has also taken strong exception to the way the bank had delegated powers to the broking firms for arbitrage.

At the time of hearing, Mr Moorthy had informed the RBI that the bank had received an offer from Srikant G Mntri of security of 37,50,000 shares of Ansal Hotels Ltd, valued at Rs 19.59 crore in lieu of the Rs 21.10 crore to be recovered from the broking outfit.