Wrong evaluation of mortgaged property results in loss of 4.16 Crore to J&K Bank: CAG

Jammu, Mach 06: Jammu and Kashmir bank’s Mumbai branch has lost rupees 4.16 crore due to the wrong evaluation of Mortgaged property and negligence of the Bank authorities, Says CAG in its report pointed out.

Every Bank has its own rules and regulations for fixing the valuation of mortgaged property whether it is movable or non-movable.

Referring a case in which J&K Bank Mumbai branch sanctioned cash credit facility of rupees seven crore to a Mumbai bases private firm engaged in transport activity and has already taken an amount of rupees 5.42 crores towards its existing bankers ie News Bank of India.

The CAG report revealed that the CC limit was sanctioned against the primary security of book debts and vehicles, besides collateral security by way of mortgage of immovable property (Land, building, godown-cum-office etc). The mortgaged property according to CAG report was valuated by during May/June 1999 and April 2000 at the rupees 6.27 crore.

The laid guide lines for sanctioning the CC limit says that before sanctioning the CC limit the Bank should ensure that the valuation of the mortgaged property is valuated by an authorized person permitted for the purpose.

The Bank, report reveals, waived off the condition on the ground that the earlier valuation was done by the government approved valuer and that the conduct was satisfactory. The firm serviced the interest up to January 2003 and thereafter the account turned stagnant and was classified as NPA Non-performing Asset with an out standing amount of rupees 8.31 crore including the interest and legal charges.

The report further revealed that the bank re-valuated the mortgaged property through its own approved valuer, who assessed it at rupees 2.24 crore against the value of rupees 6.27 crore declared by the firm earlier.

The firm later requested to the bank authorities for one time settlement of the account which was approved in march 2006 by the board of directors (BOD) of the Bank on deposit of Rupees 7.50 crore towards full and final payment of the account, against the outstanding amount of rupees 10.16 crore(November 2005)

Under this agreement, the CAG in its findings said that the bank had nothing to forego on account of the principal amount of rupees seven crore; however the firm expressed its inability to deposit the settled amount and requested for more concessions.

The CAG report referring the statement of the Bank Management the option available with the bank was to recover the amount through compromise, as it involved less time and minimum expenses to legal recourse. Thus based on the recommendations of the Management of the concerned branch Manager and DGM(T),Zonal office Mumbai, the management approved(March 2007) settlement of the case at rupees six crore towards full and final settlement, thereby forgoing even part of the principal amounting to rupees one crore.

The management according to the CAG report on financial mismanagement by the government departments and co-operations stated that besides the collateral securities, the Bank had primary security by way of hypothecation of book depts. And other assets and there was no reason to question the valuation done by the consortium of Banks.

The bank was left with no option but to settle the case as it had failed to adhere to the laid down condition in the sanction stipulating furnishing of fresh valuation report of the mortgaged property which was waived off by the bank. Thus failure of the bank to adhere to the conditions stipulated in the sanction, resulted in loss of rupees 4.16 crore.

The matter in routine was reported to the government in June 2008 but the reply had not been received by the CAG even till September 2008.(NAK)