Through a series of investigative reports, Firstpost told you the story of how Bank of Baroda (BoB) reckoned three of its regular account holders as “guarantors” to a loan to Vijay Mallya’s now defaulted airline, Kingfisher. One of the “guarantors” was a farmer in Uttar Pradesh, the second a security guard and the third a vegetable vendor (both from Mumbai).
The efforts seem to have paid off, at least partially. After days of stony silence, BoB has said its senior officers have met the “aggrieved customer” and apologised for the inconvenience. The bank also said it would compensate the customer if need be.
Here’s the full text of their brief email response:
“The accounts under reference were erroneously lien marked by the Bank, owing to similarity of personal details and select credentials with the guarantors of Kingfisher Airlines. However, on realizing this, the Bank initiated prompt action to rectify the error.
"The Bank also wishes to clarify that the customers under reference were not the guarantors for the loans provided to Kingfisher Airlines.
"The Senior Officials of the Bank have called on the aggrieved customer and have regretted for the inconvenience caused on account of this unintentional error. The Bank will also compensate him for the monetary loss, if any.”
For those who aren’t familiar with the story, here is the gist.
BoB is one of the banks in the 17-lender consortium which gave loans worth Rs 7000 crore to the now defunct airline of Vijay Mallya when the bird was still in the skies (it was grounded in October, 2012). But in December last year, BoB froze the accounts of three of its regular retail customers — Manmohan Singh and two other persons named Subhash R Gupta in Mumbai, mistaking them as Mallya’s guarantors to BoB’s Rs 550 crore loan.
This, the bank said, happened due to the similarity in their names with two gentlemen (Manmohan Singh Kapur and Subhash R Gupte) who used to be on the board of Kingfisher till two years ago.
You can read the earlier stories here:
Part 1 - BoB mistook farmer, security guard for Kingfisher directors!
Part 2 - BoB freezes a/c with Rs 93 in quest for Rs 550 crore!
Part 3 - Bank of Baroda freezes a/c of vegetable vendor!
Part 4 - BoB doesn't even know who guaranteed Vijay Mallya's loan of Rs 550 crore!
Welcome though it is, the bank’s response does not address the issues fully.
Firstly, from the emailed statement it appears that BoB is referring only to one customer, the Pilibhit farmer Manmohan Singh, who suffered monetary loss after his account was frozen.
Firstpost visited Singh at his Pilibhit home to ascertain if this was indeed true. “The bank has informed us through their lawyer that the extra interest we had to pay on the loan because the account was frozen would be waived,” he said. “But at the same time we have been requested to take withdraw the defamation case which we filed against the bank.”
Singh served a legal notice to the bank's Mumbai branch and the branch in Pilibhit, charging them with defamation and demanded a compensation of Rs 10 lakh within 30 days. Singh added: “While the bank has agreed to waive off the loan they should also give us monetary compensation for all the problems that we had to face because of their irresponsible behavior”
Rampal Gangwar, lawyer of Manmohan Singh told Firstpost: “While bank authorities have woken up after six months, all they want to do is to waive off the loan. But my client had to sell his crop (sugarcane) at a much lower price as his accounts were frozen and he needed money. He suffered much of financial loss and mental agony and he should be compensated for this.”
Bank of Baroda is silent on the other two customers who did not suffer any apparent monetary loss. It did not also specify whether it would reach out to these two customers — Subhash Ramdulare Gupta, vegetable vendor in Khar Mumbai and Subhash R Gupta, security guard, Vile Parle, Mumbai. When Firstpost called the two Guptas, they were unwilling to pursue the matter, insisting that the absence of monetary loss gave them little cause to take it up with the bank. However, the fact that these two customers did not suffer monetary loss does not mitigate the bank’s culpability in freezing their accounts without their knowledge. For this stealth attack on the rights and privileges of a customer the bank has needs to not just to apologise to them as well but make a demonstrable good will gesture to win their trust back.
Secondly, and more importantly, BoB has maintained that what happened in this particular case was an ‘office goof up’ or ‘technical error’ by some of their officials who handled the recovery process and action on the guarantors accounts. But the brunt of the Firstpost investigative series is not to magnify an office error by a bank, but to highlight the larger systemic problems it symptomises.
Two key questions come up here:
One, how foolproof are the systems and processes in place for a large, reputed bank like BoB , to handle the sanction and recovery process of a high value loan (Rs 550 crore in this case). We all know how the 17-bank consortium has pathetically failed to take early action on Mallya. The Rs 9,000 crore Kingfisher loan (with accrued interest amount) became NPA (non-performing asset) on 2012, not in last December. But, sadly, that was when banks woke up to the problem (mind you, after four years of the loan turning NPA) with the seriousness the issue warrants. And when they did, this is what happened if we take BoB as an example. How could the bank get the names of its guarantors to such a large loan wrong in the first place? Both Kapur and Gupte (the original directors on the Kingfisher board), confirmed to Firstpost over phone they were never guarantors to the Kingfisher loan and do not even have accounts with the bank. Then how did these names figure in BoB’s radar in the first place?
Two, this is the worse part. Even in identifying the wrong “guarantors”, the bank failed miserably. Before freezing the accounts of three of its regular customers, the bank didn’t bother to inform them or at least verify they are indeed the right people. The due diligence process failed at all levels, straight from the head office to the branch offices.
This raises a serious question of how safe are the bank accounts of millions of customers.
Remember, these three accounts had vey low balances (in one case Rs 93). One of the Guptas, the security guard, operated this account only to avail Prime Minister’s Suraksha Bima Yojana, the mass insurance scheme with Rs 12 premium. Just one look at their account history or their KYC details would have revealed that these customers are no way linked to Vijay Mallya or Kingfisher.
The good part is that, after we highlighted this issue, BoB at least agreed to apologise to the customer and even compensate for monetary losses. (We are trying to ascertain from the three persons if the bank officials indeed visited them expressed regrets.) But, the story doesn’t end here.
So, the larger question still remains. How was such a large loan given without even knowing the KYC details of the “guarantors”. Firstpost’s enquiries in this respect will continue to question the basic systemic issues in how banks lend public money to corporates.