People who have parked at least Rs 1.38 billion in four troubled financial cooperatives may never be able to recover their money, as many borrowers who obtained loans from these institutions are at large, while promoters do not seem to own sufficient properties to compensate depositors.
On- and off-site inspections recently conducted by a team of a high-level commission formed to launch inquiry into problematic savings and credit cooperatives revealed that the health of these cooperatives worsened beyond repair after promoters treated these public units like their ‘private properties’ and extended loans to ‘near and dear ones’ at even zero per cent interest, without the backing of collateral. Surprisingly, many of these units also did not have proper lending and deposit collection policies, while those that had one did not follow it, says the report prepared by the team, which was seen by The Himalayan Times.
“What we have seen in four of these cooperatives is just the tip of the iceberg. We believe studies of 66 other cooperatives, declared troubled so far, will yield a similar result,” chairman of the commission Gauri Bahadur Karki said.
The commission had recently conducted detailed studies on assets and liabilities of Putalisadak-based Standard Savings and Credit Cooperative, and Shubha Shree Cooperative, New Road-based Renown Multipurpose Cooperative and Ratopul-based Sahayata Cooperative.
Of these cooperatives, Standard had raised Rs 543.71 million in deposits from the public, while Shubha Shree had held public deposits of Rs 585.27 million. The two other cooperatives — Renown and Sahayata — had collected deposits of Rs 112.09 million and Rs 142.72 million, respectively.
“It is not known whether these cooperatives will be able to return money to depositors as many of the borrowers are out of contact and the credit is not backed by adequate collateral,” says the report.
Standard, for instance, had extended loans of Rs 473.61 million. But of those who took loans, borrowers who owe only Rs 106.80 million, or around 23 per cent of the total loan, are in the cooperative’s contact. The rest of the credit has been classified as ‘fake loans’, as ‘borrowers could not be identified’.
The lending practice at the cooperative was so unsystematic that a loan of Rs 27.07 million was extended to a brother of one of the cooperative’s promoters at zero per cent interest — a practice seen nowhere in the world, while another loan of Rs 20.15 million was extended to a business partner of the promoter at nominal interest.
Against this backdrop, one of the options to secure depositors’ money would have been to auction promoters’ properties, but most of the land owned by them are either pledged as collateral at other banking institutions or have been sold clandestinely, says the report.
The situation at another troubled cooperative, Shubha Shree, is not any different. Here, 30 of the 48 borrowers were relatives or friends of promoters and loans were extended to them on the basis of verbal instructions and without securing collateral. In addition, promoters themselves owe Rs 181.59 million, in principal amount, to the institution, while the only available fund at the cooperative is Rs 2.35 million parked at Siddhartha Bank.
Another cooperative where verbal instruction was the preferred mode of loan approval process was Renown. Here, loans of Rs 77.84 million, or 44 per cent of the total credit, were issued on the basis of verbal order issued by a promoter, serving also as the cooperative’s treasurer and managing director, who is at large now.
Surprisingly, the institution also breached simple banking rules and went beyond its means to issue Rs 175.81 million in loans — higher than its total deposits of Rs 112.09 million. This means the cooperative dug into its capital fund, and exhausted paid-up capital and reserves to issue loans and is in no condition to pay back depositors’ money.
Similar is the condition with Sahayata, which ran into trouble after one of its promoters embezzled Rs 38.21 million of cooperative’s money and fled around three years ago. Only Rs 13.12 million has been recovered from him so far, while all the loans issued by the institution have turned sour, meaning borrowers have stopped repaying them.
“The situation seen at these institutions is startling,” said Karki, implying the promoters were literally robbing depositors, who had kept small savings at these institutions.
source: the himalayan times,12 feb 2014
LINK
On- and off-site inspections recently conducted by a team of a high-level commission formed to launch inquiry into problematic savings and credit cooperatives revealed that the health of these cooperatives worsened beyond repair after promoters treated these public units like their ‘private properties’ and extended loans to ‘near and dear ones’ at even zero per cent interest, without the backing of collateral. Surprisingly, many of these units also did not have proper lending and deposit collection policies, while those that had one did not follow it, says the report prepared by the team, which was seen by The Himalayan Times.
“What we have seen in four of these cooperatives is just the tip of the iceberg. We believe studies of 66 other cooperatives, declared troubled so far, will yield a similar result,” chairman of the commission Gauri Bahadur Karki said.
The commission had recently conducted detailed studies on assets and liabilities of Putalisadak-based Standard Savings and Credit Cooperative, and Shubha Shree Cooperative, New Road-based Renown Multipurpose Cooperative and Ratopul-based Sahayata Cooperative.
Of these cooperatives, Standard had raised Rs 543.71 million in deposits from the public, while Shubha Shree had held public deposits of Rs 585.27 million. The two other cooperatives — Renown and Sahayata — had collected deposits of Rs 112.09 million and Rs 142.72 million, respectively.
“It is not known whether these cooperatives will be able to return money to depositors as many of the borrowers are out of contact and the credit is not backed by adequate collateral,” says the report.
Standard, for instance, had extended loans of Rs 473.61 million. But of those who took loans, borrowers who owe only Rs 106.80 million, or around 23 per cent of the total loan, are in the cooperative’s contact. The rest of the credit has been classified as ‘fake loans’, as ‘borrowers could not be identified’.
The lending practice at the cooperative was so unsystematic that a loan of Rs 27.07 million was extended to a brother of one of the cooperative’s promoters at zero per cent interest — a practice seen nowhere in the world, while another loan of Rs 20.15 million was extended to a business partner of the promoter at nominal interest.
Against this backdrop, one of the options to secure depositors’ money would have been to auction promoters’ properties, but most of the land owned by them are either pledged as collateral at other banking institutions or have been sold clandestinely, says the report.
The situation at another troubled cooperative, Shubha Shree, is not any different. Here, 30 of the 48 borrowers were relatives or friends of promoters and loans were extended to them on the basis of verbal instructions and without securing collateral. In addition, promoters themselves owe Rs 181.59 million, in principal amount, to the institution, while the only available fund at the cooperative is Rs 2.35 million parked at Siddhartha Bank.
Another cooperative where verbal instruction was the preferred mode of loan approval process was Renown. Here, loans of Rs 77.84 million, or 44 per cent of the total credit, were issued on the basis of verbal order issued by a promoter, serving also as the cooperative’s treasurer and managing director, who is at large now.
Surprisingly, the institution also breached simple banking rules and went beyond its means to issue Rs 175.81 million in loans — higher than its total deposits of Rs 112.09 million. This means the cooperative dug into its capital fund, and exhausted paid-up capital and reserves to issue loans and is in no condition to pay back depositors’ money.
Similar is the condition with Sahayata, which ran into trouble after one of its promoters embezzled Rs 38.21 million of cooperative’s money and fled around three years ago. Only Rs 13.12 million has been recovered from him so far, while all the loans issued by the institution have turned sour, meaning borrowers have stopped repaying them.
“The situation seen at these institutions is startling,” said Karki, implying the promoters were literally robbing depositors, who had kept small savings at these institutions.
source: the himalayan times,12 feb 2014
LINK
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