A close look at last year’s annual report of
Maharashtra State Co-Operative Bank (MSCB) reveals that important pages are
missing from the auditor’s report—namely the Audit Memorandum and annexure (Part
A, B and C). This is how companies hide crucial information from the
stakeholders and keeps them in the dark. Obtaining even a single piece of
information, the stakeholder is made to run from pillar to post, as always.
According to Page 54 of the 2011 MSCB Annual Report, the auditors, Batliboi & Purohit had mentioned;
“In our opinion and to the best of our information and according to explanations given to us, the said accounts, read together with the Significant Accounting Policies in schedule No XI and Notes forming part of accounts in schedule No XII and our Comments and Observations in the Audit Memorandum (Part A, B and C) of the even date, gives the information required by the Maharashtra Co-operative Societies Act, 1960 the Rules 1961 made there under and Banking Regulation Act, 1949 (as applicable to Co-operative Bank), in the manner so required, give a true and fair view.”
Moneylife’s attempt to locate the Audit Memorandum or its comments and observations, especially Part A, B and C (the annexure) of the memorandum, which is material and important for stakeholders and depositors, drew a blank.
We sent an email was sent to Batliboi & Purohit’s partner, Raman Hangekar, who signed off the Audit Report, requesting copies of the same. However, he sent a terse reply that said, “Please refer to Maharashtra State Cooperative Bank”. That’s right—a one liner. Thereafter, a mail and letter was sent to MSCB requesting the same. No email reply has been received so far.
We are now in the process of writing to the Institute of Chartered Accountants of India (ICAI), the body that regulates the accounting profession, to take action and ensure that MSCB’s Audit Memorandum and its annexures are duly disclosed.
Moneylife had earlier written a piece on Maharashtra State Co-Operative Bank and cited that it was in deep financial trouble due to its suspicious loan distribution to some of its favoured co-operative banks as well as some loss-making sugar co-operative factories. The very next year, a press note was issued, from its administrators, stating, “The liquidity position of the bank is adequate to meet its demands towards deposits.” This is despite its negative net worth of Rs144.22 crore for the 2009-10 fiscal.
In the 2010-11 fiscal, according to the annual report, it is pertinent to note that the company was imposed a penalty of Rs5 lakh, for non-compliance of Reserve Bank of India (RBI) directions issued u/s 35A of the Banking Regulation Act, 1949 (The Act). According to Section 35A of the Act, it gives RBI the powers to give directions to a bank, in the interest of depositors and to safeguard their interests.
Furthermore several deviations were noted in the annual report and stated in verbatim, below:
1) Deferred Tax Asset of Rs112.92 crore has been accounted in the books of account based on the management representation that sufficient future taxable income will be generated against which deferred tax asset will be adjusted.
2) As per AS-22, “Accounting for Taxes on Income”, the deferred tax asset of Rs112.92 crore has been accounted in the books of accounts. The bank does not have deferred tax liability but an amount of Rs56.16 crore has been shown as deferred tax liability under the head of other liabilities due to wrong accounting which should have been transferred to the reserves. Accordingly, other liabilities have been overstated and reserve fund and other reserves understate to that extent.
3) The balance sheet shows NPA (non-performing assets) interest receivable of Rs542.55 crore up to 2007 under the head interest receivable account instead of non-performing interest receivable account (as per contra). Therefore NPA interest receivable account is understated and interest receivable account is overstated to that extent.
4) The paid up capital shows 20 shares of Rs50 each, which is not in commensurate with the authorised capital of Rs1,000 per share, and the capital is not shown correctly to that extent.
5) The bank has not complied with Accounting Standard-3, “Cash-Flow Statements”, Accounting Standard-17, “Segment Reporting” and Accounting Standard-19, “Leases” issued by ICAI.
Given the above irregularities, as well as its past reputation, the bank could be holding back crucial information that could be materially adverse for depositors and stakeholders alike. Will ICAI take action? Will the stakeholders get the information they seek?
According to Page 54 of the 2011 MSCB Annual Report, the auditors, Batliboi & Purohit had mentioned;
“In our opinion and to the best of our information and according to explanations given to us, the said accounts, read together with the Significant Accounting Policies in schedule No XI and Notes forming part of accounts in schedule No XII and our Comments and Observations in the Audit Memorandum (Part A, B and C) of the even date, gives the information required by the Maharashtra Co-operative Societies Act, 1960 the Rules 1961 made there under and Banking Regulation Act, 1949 (as applicable to Co-operative Bank), in the manner so required, give a true and fair view.”
Moneylife’s attempt to locate the Audit Memorandum or its comments and observations, especially Part A, B and C (the annexure) of the memorandum, which is material and important for stakeholders and depositors, drew a blank.
We sent an email was sent to Batliboi & Purohit’s partner, Raman Hangekar, who signed off the Audit Report, requesting copies of the same. However, he sent a terse reply that said, “Please refer to Maharashtra State Cooperative Bank”. That’s right—a one liner. Thereafter, a mail and letter was sent to MSCB requesting the same. No email reply has been received so far.
We are now in the process of writing to the Institute of Chartered Accountants of India (ICAI), the body that regulates the accounting profession, to take action and ensure that MSCB’s Audit Memorandum and its annexures are duly disclosed.
Moneylife had earlier written a piece on Maharashtra State Co-Operative Bank and cited that it was in deep financial trouble due to its suspicious loan distribution to some of its favoured co-operative banks as well as some loss-making sugar co-operative factories. The very next year, a press note was issued, from its administrators, stating, “The liquidity position of the bank is adequate to meet its demands towards deposits.” This is despite its negative net worth of Rs144.22 crore for the 2009-10 fiscal.
In the 2010-11 fiscal, according to the annual report, it is pertinent to note that the company was imposed a penalty of Rs5 lakh, for non-compliance of Reserve Bank of India (RBI) directions issued u/s 35A of the Banking Regulation Act, 1949 (The Act). According to Section 35A of the Act, it gives RBI the powers to give directions to a bank, in the interest of depositors and to safeguard their interests.
Furthermore several deviations were noted in the annual report and stated in verbatim, below:
1) Deferred Tax Asset of Rs112.92 crore has been accounted in the books of account based on the management representation that sufficient future taxable income will be generated against which deferred tax asset will be adjusted.
2) As per AS-22, “Accounting for Taxes on Income”, the deferred tax asset of Rs112.92 crore has been accounted in the books of accounts. The bank does not have deferred tax liability but an amount of Rs56.16 crore has been shown as deferred tax liability under the head of other liabilities due to wrong accounting which should have been transferred to the reserves. Accordingly, other liabilities have been overstated and reserve fund and other reserves understate to that extent.
3) The balance sheet shows NPA (non-performing assets) interest receivable of Rs542.55 crore up to 2007 under the head interest receivable account instead of non-performing interest receivable account (as per contra). Therefore NPA interest receivable account is understated and interest receivable account is overstated to that extent.
4) The paid up capital shows 20 shares of Rs50 each, which is not in commensurate with the authorised capital of Rs1,000 per share, and the capital is not shown correctly to that extent.
5) The bank has not complied with Accounting Standard-3, “Cash-Flow Statements”, Accounting Standard-17, “Segment Reporting” and Accounting Standard-19, “Leases” issued by ICAI.
Given the above irregularities, as well as its past reputation, the bank could be holding back crucial information that could be materially adverse for depositors and stakeholders alike. Will ICAI take action? Will the stakeholders get the information they seek?
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