When I studied the case of Veershaiwa Bank, Chembur, I noticed that the style in which this bank is throttled by the ex manager, Mr. Kadoli, is representative of such frauds. It should be, made a part in the study of banking science. To know how, the manager with the help of the CEO, duly appointed by him, can destroy a bank; we shall see now. 

Following are the details in brief; I came to know as I investigated, about the way that Bank is being throttled. It all began about in the year 2005. I heard that one minister from the government of Maharashtra State by name Harshwardhan Patil demanded some funds from then manager Mr. Kadoli for his political activities and Kadoli provided him with the funds from this banks treasury. Mr. Patil had promised that he shall refund that amount but he never did return the money and instead told Kadoli that he shall get all the help in protecting his interests, using Patil’s political influence in the government. True to that promise, the Minister did give Kadoli required protection by sidelining all the efforts of the management of the Bank in pursuing the investigation. This gave Kadoli confidence so much so that he began to take loans from the Bank on any flimsy grounds and the money was flowing out with no control what so ever.

Matters were, dually taken up for investigation by the Reserve Bank but there also Kadoli managed the officers concerned and he could not be, arrested from the fraudulent activity. Kadoli used names of his many friends to extract loans from the bank and as on now, the pending loans are to the tune of about 56 crores.

While doing that Kadoli made use of his friend, one Mr. Dharmpal, whom he dually appointed as the CEO of the bank. Mr. Dharmal asked a few of the strategically positioned staff to take loans from the bank at very low rate of interest and invest that money with Kadoli to get interest at the rate of 2% per month. This allured that staff and many loans are now on the head of this staff. As a result, matter became difficult and the Reserve Bank inquiry forced the bank to stop their normal banking business. As a result for many years, this bank has not been paying any dividend to the shareholders.

Now the need to destroy the bank became very urgent and for that, CEO is trying various methods available in the law to do it. Under normal course if the defaulting borrowers are bankrupt, that leads to subsequent liquidation of the Bank however, in this case, all borrowers are intact (in fact, getting richer) and so that option is not available to the CEO, Dharmapl. He is trying other options provided in the law. In that, if existing board of Directors resign, then that bank can be, declared insolvent; also if large number of the staff resigns that bank may be also declared insolvent. At present Dharmpal is busy trying both these options. Advantage, of declaring the Bank insolvent, to the culprits is many folds; they shall not have to pay the money. This is what Dharmpal is telling the staffs, who have invested the loan money with Kadoli, because even they shall not have to repay that loan. At present Kadoli has stopped paying any interest to the staff on their investment to him; while bank is demanding instalments from them for the loan they have taken.

Initial efforts to bring the matter to the Court by honest management of the Bank were, successfully throttled by one accomplice of kadoli, one, Mr. R. R. Sheikh, a public prosecutor and also a defaulter in this case to the tune of some crores. For that part of the topic, you may visit my posting “Height of Corruption”. 

1. What Reserve Bank was doing all these years while this drama of open looting of the bank by the manager with the help of the CEO was going on unabated? Particularly in this case, because, the honest management was continuously intimating all the anomalies to the Reserve Bank since 2009. 

2. What is the fault of the investors in various investment schemes of the Bank; since, they have to write off their hard-earned money to the appropriating Bank if Mr. Dharmpal becomes successful in liquidating the Bank. We see that appropriating bank makes huge profits. This is because as per the provisions as at present in practice the appropriating bank is entitled to give only a small portion of the existing investment of the investors. Some times no compensation is given and some times maximum one lac given for all the investment. This is a type of robbery committed by the appropriating bank and that too with the help of law. What type of corruption is it? 

3. It is time that we ask the Reserve Bank why at all a Bank goes in liquidation when they are monitoring all the activities of that bank regularly. No Bank goes insolvent overnight. They take many years to fall. Why reserve bank officers did not take required action in time to stop the wrong activity of the bank people, whoever they may be. A judicial inquiry should be constituted to get the matter straightened. 

4. Is it not necessary that the monitoring staffs of the Reserve Bank are, held responsible for the fall of a Bank? 

5. Since the fall of a Bank is due to negligence of the monitoring staff of the reserve Bank; it becomes the responsibility of the Reserve Bank to compensate (and not the appropriating Bank) in full, the investors of the Bank in case of insolvency. That is necessary, as the investors are not in any way responsible for fall of the bank and the malpractices of the bank Directors, manager and the CEO, which causes the fall.

6. What is the justification of appropriating investors fund and by that act penalizing the innocent investors by the appropriating bank? 

7. It is high time that the Reserve Bank explains the policy of eating the money of the investors in this way. This is a type of fraud and must be, stopped with immediate effect. 

One banking expert told me during the discussion that if this provision of making part payment, by way of compensation is, removed and full payment made mandatory; no bank will ever go bankrupt. That is obviously, because the Reserve Bank will not want to make the compensation to the investors. That shall bring better control of management by the Reserve Bank. That shall make banking business more secured.

I was told by some officers from a Bank that Reserve Bank wants to slowly destroy all small banks under some pretext or the other and bring monopoly of big banks and by that destroy democratic structure of our banking system. 

I invite you to visit my other blog if you are interested in stories. 

Ashok Kothare’s Blog

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