Unravelling the forensic audit controversy at Kolkata-headquartered Bandhan Bank

Bandhan Bank revealed on Tuesday that the National Credit Guarantee Trustee Company (NCGTC) would undertake an audit of loan claims it filed under the Credit Guarantee Fund for Micro Units (CGFMU) scheme. 

What’s the NCGTC? 

The NCGTC, which comes under the Union Ministry of Finance, was established in 2013-14 to oversee and run different credit guarantee trust funds. It currently manages close to a dozen funds to support flow of credit to students, women, MSMEs, etc., by offering a guarantee to banks and other lending financial institutions.   

What is CGFMU? 

CGFMU, one of a dozen schemes overseen by the NCGTC, offers portfolio guarantees for collateral-free micro loans up to Rs 10 lakh sanctioned by banks, NBFCs, and MFIs under the Pradhan Mantri MUDRA Yojana (PMMY). It also covers overdraft facilities up to Rs 10,000 under Pradhan Mantri Jan-Dhan Yojana (PMJDY) accounts and self-help group (SHG) loans ranging from Rs 10 lakh to Rs 20 lakh. Bandhan Bank has taken the guarantee cover for micro loans under this particular scheme. 

The CGFMU scheme is like an insurance scheme, where the insured takes a cover by paying annual premiums. The bank paid a guarantee fee under CGFMU of Rs 213.71 crore in FY23, significantly higher than Rs 9.89 crore in FY22. The scheme compensates for loss due to non-performing assets (NPAs). 

When borrowers default beyond 90 days, the bank classifies them as NPAs, makes provisions per RBI guidelines, and approaches NCGTC for recovery. The recovery from NCGTC contributes to the NPA provision cover, resulting in reduced net NPAs, without impacting the profit and loss account. The delay in getting the money means a loss on the side of reduced provisioning coverage ratio and net NPAs. The ratios would have been better had the bank realised the money. This disappointed the investors, and the stock fell.  

Bandhan’s recovery performance  

In FY23, the bank actually received Rs 917 crore from the government as part of the CGFMU scheme. An additional recovery of Rs 1,290 crore was expected in the first half of FY24. However, this has been delayed as NCGTC has decided to conduct a detailed audit for the CGFMU portfolio of FY21, with the bank clarifying that it’s not a regulatory audit but an examination of the CGFMU claim made by the bank.