In a controversy that has now rocked Kerala, a Rs 100-crore bank fraud was uncovered in Thrissur’s Karuvannur Cooperative Bank. It also significantly impacts the ruling CPI(M), as the bank’s Board had members of the party, and was led by local CPI(M) leader KK Divakaran, and is the latest in a list of controversies the ruling party is embroiled in. With the Assembly currently in session, the bank fraud dominated the session and led to a walkout by the UDF. Congress member Shafi Parambil called the fraud as the tip of the iceberg, and termed it as the “biggest bank robbery” in Kerala. The Congress has alleged that the CPI(M)’s leadership has kept the scandal under wraps despite knowing the extent of it.
The fraud involves faked signatures, benami transactions, remortaged properties, and several people receiving collection notices for amounts they never borrowed. The matter took a turn when a former Panchayat member died by suicide, allegedly after receiving a foreclosure notice for recovering amounts he never borrowed.
Sixty-three-year-old TM Mukundan, formerly a member of the Porathissery panchayat, died by suicide on July 22, 2021 allegedly because he received a foreclosure notice for recovery from the bank. Mukundan, who had his savings at the Karuvannur Cooperative Bank, borrowed Rs 30 lakh a few years ago, and revised his loan. In a statement, the bank said that Mukundan took two loans -- of Rs 50 lakh and Rs 30 lakh. It added that a notice for repayment of the loan had been sent in February, but after he said he did not have the money to repay the amount, the bank allegedly gave him more time was given and he has since not been asked.
The bank was reportedly a trustworthy financial institution, and according to its own statement, had a deposit base of Rs 411 crore. With the bank under severe financial distress and once the scam came to light, depositors have been rushing to retrieve their money. However, the bank is only giving people Rs 10,000 each day, and that too under a token system, putting depositors in a hard place.
Discrepancies of the fraud first came to light in 2019. A probe was sanctioned in August 2019 by the joint registrar of cooperation (Thrissur) and according to the New Indian Express, the probe was completed by October 2020, but no subsequent action had been taken.
The audit report found that the scam primarily involved six people, including the bank manager Biju Kareem, secretary TR Sunilkumar, accountant Jils CK and a member of the bank, Kiran, who was reportedly a commission agent. Biju is a CPI(M) Porathissery local committee member, and Sunilkumar is a Karivannur local committee member.
According to Inspector Irinjalakuda Circle Inspector MJ Jijo, following the audit, Sunilkumar was suspended and the assistant secretary took charge, and eventually filed the police complaint in the matter.
Currently, all the accused in the scam are absconding, and the probe has been taken over by the Crime Branch. According to reports, the Enforcement Directorate has also started a probe in the matter.
On July 22, Thursday, the cooperation department’s joint registrar dissolved the Board, and MC Ajith, the assistant registrar of cooperative societies, was appointed as the administrator.
The scam reportedly came to light because many of the bank’s borrowers received recovery notices for amounts greater than what they had borrowed, leading to complaints being filed with the registrar for cooperatives and an audit being conducted as well.
There were several avenues through which the fraud was allegedly perpetrated. This included pledging property that had already been mortgaged by customers to draw loans to borrow more money without the customers’ knowledge.
The cooperative also runs a supermarket. Under the guise of replenishing the supermarket's stock, Rs 1.56 crore had allegedly been taken out of the bank despite the supermarket already having stock. To fix the bank’s software, Rs 50 lakh was paid out while Rs 25 lakh was the actual cost.
Membership: Memberships in cooperatives are bound by certain rules and laws, and new members who are to be enrolled have to fulfill certain conditions, including being a resident of that particular area or region. However, the bank’s bylaws were violated and rules under Section 16 of the Kerala Co-operative Societies Act, 1969, under which membership can be given to only residents, were flouted. In this case, the bank is in Thrissur but memberships were given to those those outside Thrissur as well. “While their identity documents and address proof were kept in the file, the address in the application form was corrected to suit the criterion,” the audit report stated.
With the addresses changed, loans were given as well. When default letters were sent to the borrowers as these were not loans which were being paid back, the letters too would bounce and return to the bank.
Admitting members into the co-operative falls under the ambit of the bank’s governing body.
Benami loans: The report adds that large-scale benami transactions have been found in loan disbursement.
For example, one bank employee was given three class C memberships, where the employee stands as surety. However, loans of Rs 50 lakh each are sanctioned to all three of these people, but when the same is entered into the ledger, the employee providing surety is signed up for only one of the members, and the others are not mentioned.
With no proper addresses, loans would be sanctioned for these members without collateral, documentation or tax receipts. Where this money was routed is unknown.
In another instance of violating the law, the audit committee report states that despite taking a loan from one of the branches of the bank, more loans continued to be sanctioned to the same people, which is against the law.
It also adds that in instances where the overdraft limit was Rs 25 lakh, the secretary, Sunilkumar, would change this amount to Rs 50 lakh in order to be able to take out the money.
In several instances, loan confirmation letters to those loans above Rs 50 lakh would return to the bank.
In another case of fraud, the audit committee report notes that a senior clerk in the bank said Biju had used her employee code to close loan accounts of people who hadn’t paid off their loans, and they were given the paperwork for the closure of those loans as well.
In addition, the report states that Biju took out loans in the names of multiple family members — his own, his wife, his parents, both in-laws, brother and brother’s wife, sister and sister’s husband.
Several loans taken were never repaid, and there is no documentation for the same. Bank employees availed loans in the names of others and provided wrong information as well. This was revealed by Jose, an administrative committee member.
Real estate: In addition to benami loans, reports state that sizable amounts were given out loans to be invested in a resort project in Thekkady, reportedly owned by a man named Bijoy. Bijoy was also a Rubco collection agent for the bank. Several loans taken were to allegedly funnel the money into this resort.
“The usual norm is to grant the loan only after the President, Vice President and Secretary of the bank discuss with the customer to assess his repayment capacity and the collateral provided. The land (that would be given as collateral for the loan) would be valued by the manager of the branch concerned and also by the administrative committee of the region concerned. But, in loans granted for more than Rs 50 lakh and above, bank employee Biju was the one only one to do the assessment,” the audit committee report states.
With Biju assessing these applications, the loans were approved.
“In some of the loans, the title deed of the land was not kept in the file. In some other cases, the lands which were given as security were sold even when the loan was outstanding. Loans were allowed even without filling up forms properly — without the owner of the land signing the application, without filling the bond, without the governing body recommending the loan, without the president of the bank attesting it and without examining the prior liability of the land,” it adds.
Bank officials are responsible for physically checking collateral while giving loans for higher amounts, but these rules were not followed, creating a loss for the bank.
There was allegedly an understanding with employees that they won’t be stringent on collecting documents. They ensured this happened by hiring inexperienced people and using new hires on loan documentation work. “They created an atmosphere that will be conducive to the fraud,” the audit report states.
“Loans were granted for real estate business as benami transactions. Biju has given a statement that to renew loans in the months of March, the previous land assessment reports were distorted. He has also given a statement that he had received money for such benami persons by signing in the vouchers. Some of the loans granted on the security of land which didn't have enough fair value. The loans availed by Biju and Rubco commission agent Bijoy were availed on security of land which didn't have a fair valuation.
In addition, the audit report found that the bank’s president KK Divakaran gave a statement that signatures in land assessment reports were not his. However, he has admitted that there were lapses.
“The usual norm is that all the persons should sign in the loan application, it has been found that in many of the applications all the parties concerned didn't sign. In some of them even the land owner hasn’t signed,” it states.
It adds that loans were sanctioned without obtaining the possession certificate, compliance report and tax payment receipt. In addition, in one of the loans, the fair value of the land was distorted as well.
Secretary Sunilkumar, who was supposed to supervise the employees himself, got into an understanding with them and was embroiled in the fraud.
The audit committee panel had also recommended a probe by the Vigilance and Anti-Corruption Bureau.
A report by B Sreejan in the New Indian Express said that the board and employees perpetrating the fraud tried to keep it under wraps if the loans taken were cleared by December 31, 2020. This, the report says, was after the audit report was submitted in October last year, and the money was to be recovered to clear the loans by selling off some assets.
After the party came under fire for the fraud, CPI(M) district secretary MM Varghese told reporters that if people are found guilty, they will be removed from the party.
With the Assembly in session, the fraud dominated the conversation on July 23, Friday. The Congress alleged that though the fraud had come to light in 2018, the governing council of the Karavannur Cooperative Bank in Irinjalakuda in Thrissur district was dismissed only on Thursday, justifying their allegation that the Marxist party had taken a decision to keep the fraud a secret. “What were you doing in these three years," Opposition Leader V D Satheesan asked.
Minister of Cooperation VN Vasavan has refuted the charges and said the government acted promptly and seven bank employees, allegedly involved in the fraud, had already been suspended. A complaint in this regard was lodged for the first time on January 16, 2019 and police registered a case within a week.
On the charges of delay in dismissing the bank governing council, the minister said there were some mandatory proceedings to be followed, including conducting a probe, before doing so.
The irregularity was estimated to the tune of over Rs 104 crore, the minister said.
"A crime branch probe is on into the incident. The Cooperation Department is also carrying out a separate probe," Vasavan added.
Congress’ Shafi Parambil has alleged that imaginary names were used by those involved in the scam to dole out loans of over Rs 50 lakh each to 50 people. In addition, he alleged 379 illegal loans were also given out by the bank — which were anywhere between Rs 13 crore and Rs 26 crore.
The situation was that the account holders, who had not taken a loan of even one rupee, had to repay up to Rs 100 crore, he said.
The Palakkad legislator also charged that the party itself had carried out a probe into the scam but kept all the findings, which confirmed the irregularity, under wraps in these years.
With inputs from PTI