The Bank has granted Cash Credit facility against hypothecation of cotton stock material. Objective was to monitoring the borrower for end use of the fund, ensuring collateral & prime security is secured, compliance with statutory requirements, going concern of business & financial stability to repay the borrowed funds. The process of monitoring requires physical verification of stock, matching the physical verification of stock with stock statement, verification of statutory compliance returns & payment challans, discussion with the existing staff for understanding working conditions, conducting reference check, collaborating evidence matching with the records and enquiry with borrower officials.
NHBS LLP obtained sanction letter, copy of insurance, latest stock statement & borrowers coordinates of corporate office & storage of stock from Bank. We have verified the information & statements received from Bank with the books of accounts and no deviation was observed. The borrower was maintaining the outstanding within the limit & was regular in serving the Interest. However, we have noted that the nature of stock have changed from stock of cotton to fire crackers. The stock of fire crackers were not recorded in the books of accounts nor reported to Bank. On the contrary, borrower was always reporting having stock of cotton in its regular stock statements submitted to Bank.
Escalation was immediately made to the credit team of Bank which resulted into freezing the limit and starting of recovery proceedings. Later, we have understood that the representative manager have failed to unearth the manipulation of books of accounts and deviation of funds into different product & business.
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