The great big case of Rs. 623 cr. owed to Sikkim's prime bank: The State Bank of Sikkim story

The great big case of Rs. 623 cr. owed to Sikkim's prime bank: The State Bank of Sikkim story
Photo Credit: National Herald

Sikkim's recent buzzword (or rather, buzz-phrase, if you will) has been 'SBS loan defaulters' public name disclosure'. It has brought up issues of privacy concerns and also questions regarding the functioning of the bank in question - the State Bank of Sikkim. For a place that has a history of having a special status, it is noteworthy to look both into the history and the recent controversy that took place in 2020. 

The History of State Bank of Sikkim

The State Bank of Sikkim is a state-owned functioning institution situated at Gangtok, Sikkim, established in 1968. 

It has 46 branch offices and 3 Revenue Counters working on 24/7 basis, summing up to 45 branch locations spread all over Sikkim, Gangtok (as on 8th September 2018). Today, it has a branch network of 54 branch offices spread all over Sikkim with six Revenue Counters with three counters working on a daily basis. 

A board of directors head the bank with Phurba Wangdi Bhutia as the Managing Director and Dal Bahadur Gurung as the Chairman. The bank was constituted in the pre-merger era, serving the state for over 50 years. It continually works with the state in partnership with development projects in the state. 

It comes under the jurisdiction of the state where it handles and manages the treasury functions of the state government of Sikkim.

It is an independent institution under the Government of Sikkim and is not managed by the Reserve Bank of India, compared to other banks in India where the RBI regulates and oversees their functions. This unique nature of SBS is that it doesn’t fall under the purview of the Banking Regulation Act of 1949 and the Companies Act, 2013. 

As mentioned in the Comptroller and Auditor General’s report for the state of Sikkim 2018-19:

Unlike other states, Reserve Bank of India (RBI) does not have operations in this state in government business till date as no agreement exist between RBI and Government of Sikkim in terms of section 21AA of the RBI Act, 1934. 

The autonomous status of the bank has invited criticism from other states, with a petition being filed before the Bombay High Court by Ashok Kumar Jain, an anti-corruption and RTI activist calling SBS a ‘Swiss Bank’ where it could ‘provide a safe haven for terrorist funds and ill-gotten wealth’. He alleged that a former chairman of DVC and several other PSU chiefs had deposited money into accounts in SBS. 

A notice was served to SBS and RBI after the HC accepted the plea. Previously, the latter had claimed that the bank’s balance sheet had not been audited for five years. The Sikkim Krantikari Morcha (SKM) had then echoed similar concerns in 2017, accusing the bank of servicing ineligible bank accounts during demonetization. 

In a report from National Herald India, the then General Secretary of SKM, Navraj Gurung had stated:

“SBS is the treasury of the Sikkim Government. In the past, CAG has also pointed out that the balance sheet of the bank is not audited. So, the bank remains prone to political influences, poor credit management and corruption,” he said, adding that it is not “difficult” for outsiders (non-state subjects) to open accounts with the SBS.

In another article on the Economic and Political Weekly by Sikkimese scholar Sunil Pradhan who is a PhD scholar at the Centre for Comparative Politics and Political Theory at Jawaharlal Nehru University, he writes:

Under RBI regulations, the WMA policy maintains that cash balances of state governments have to be invested in treasury bills and dated government securities of Government of India which SBS and Government of Sikkim is not covered. In this, SBS and GOS as shareholders are allowed to keep dividends from its low-cost deposit and not the Government of India. This has so far allowed SBS and the Government of Sikkim to evolve its independent fiscal policy to establish its daily expenditure beyond the WMA limit. It is important to note that state governments are already at the mercy of Ministry of Finance, Government of India for meeting their expected annual expenditure.

The piece explores the question of whether demonetization breached the autonomy of Sikkim and is well worth the read for those who wish to understand the subtle complexity of the State Bank of Sikkim.

So what happens when a bank as unusual as this is found to have 2,342 loan defaulters who owe the bank around Rs. 623 cr. since 1968?


The defaulters and the man

The State Bank of Sikkim (SBS) is being recently pulled by many sources since the political activists Nawin Kiran Pradhan has raised the issues of defaulters of SBS.

The list of the defaulters was made public by Nawin Kiran, an advocate and a social activist wherein, the list was provided to him by the State Bank of Sikkim itself by order of State Information Commission of Sikkim under the Right to Information Act.

The SBS list presents 2342 names, including MLAs, ex-MLAs, businesspersons and stakeholders from different sections of the society and industry. The oldest loan taken from the bank is from 51 years ago in 1969 for construction by Gangtok resident and the sanctioned sum is of Rs 5,000/- at a 12% rate of interest.

Pradhan has stated, “When the bank collapses the depositors loses their money, for instance when the Maharashtra and Punjab bank was doomed many people lost their deposits.”

Meanwhile, the highest amount of loan taken is by the Energy and Power Department in 2014, where the sanctioned amount is Rs 1,030,100,000/- at a 12% rate of interest, and on the other hand, the lowest amount goes up to Rs 2,500/- taken by a Gangtok resident in the year 1974. The given data clearly shows that the bank has failed to provide a healthy service to the customers. Many have speculated that the bank might have functioned politically.

A local person said, “I have been a loyal customer of state bank since many years, I had deposited cash in the bank, but recently when I came to know about the long defaulter list I was shocked looking at the list. I was worried that my money would get dissolved so I took all my cash out and closed my account in the bank”.

The State Bank of Sikkim has been in existence since the state was ruled by a monarch and the bank is regarded as a heritage to people of Sikkimese origin. It holds accounts of the majority of the people in the state, seen as the primary bank and it’s uniqueness reflects in the fact that SBS is not under the Reserve Bank of India. It has independent bank functioning norms,  but due to lack of accountability in the last few years, the question that arises among people is whether the bank will be able to take such a massive debt and survive? 

“When I was going through the Comptroller and Auditor General  (CAG) report of 2018, in that particular report I saw a section wherein the functioning of the State Bank of Sikkim was highly criticized, so I filled an RTI before SPIO SBS in the month of February. The primary questions were to reveal the names of the defaulter and the total amount taken in the form of a loan. I didn’t receive any reply since the bank didn’t want to disclose names due to privacy concerns of the customer”, says Pradhan. “But in the month of August I filed a second appeal and after three long months the State Information Commission ordered the bank to provide me the list of the defaulters”.

“The principle amount to be returned was approximately 622 crores, which happens to be almost 18-20% of revenue receipt or a one-year budget of our state,” he adds. “If the money is not returned to the bank then it will have a devastating effect on the state’s economy”.

The bank's statement

The Managing Director of SBS, Phurba Wangdi Bhutia, giving the perspective of the bank’s administration on the issue raised by Pradhan, said that when Mr Pradhan filed questions to the bank, they did not reply as they consider information on any loan account is third-party information. 

Afterwards, when Pradhan went and appealed to the SIC, he won, leaving no choice but for the bank to comply with his request. 

“We don’t whose and how Mr Pradhan is disclosing the names we are not sure and even whether he can disclose the names we are not sure but how he brought the bank’s perspective is wrong. As he mentioned Rupees 623 crore that only comprises of 20 per cent of our loan portfolio and our loan portfolio is over Rupees 2000 crore. In this as well over 100 crores is of the data is very old unrecovered loans which was provided complying to the state information commission’s ruling [sic]”, says Bhutia. 

He also informed that from the sum of the loans taken, around Rs. 100 crores have already been written off which means that technically, SBS has fully provided the amount from the bank’s own account with the balance sheet clean up exercise but the defaulters have not been pardoned entirely. 

He informed that around Rs. 100 to 150 crores are of those who have given some of the instalments. 

“The loan number of Rs. 129 crores belonging to the state government, for the time being technically it may be a Non-Performing Asset (NPA) but the government have to repay it as government cannot escape, it is a sovereign body”, added Bhutia. 

He notified that defaulters are those who couldn’t repay their loans for the time being but all the loans are secured via a mortgage, guarantee, securities and many more. Most of the defaulter’s cases are being run in the districts courts and a notice has also been sent to many. 

Some even received auction notices as these are all normal practices of the bank. 

“As of now, we believe that SBS has no threat, as it is being projected,” said Bhutia.

“I personally want to thank Mr Kiran for his work and how he is appealing to people for repayment of outstanding loan amounts which is a positive sign. However, he should be a little careful in making certain statements such as saying that the bank is drowning in his overexcitement”.

“The bank is strong and doing well; we are not drowning but looking to grow. We are making our plans and a discussion is going on as well as we are protecting our old laws of the state. For any economy to grow, the bank has to perform in perspective bank plays a vital role in economic development so we are taking it to the growth part. As our present chief minister mentions that SBS is our mother we are aiming the growth of the bank while protecting our old laws”.

“The contribution of SBS in the economy of the state is as much as around 60 per cent especially in development works or big projects such as the construction of schools, roads, hospitals and other such infrastructure in the state. Cash credits or overdrafts supported around 80 per cent of the local contractors to complete their projects - these things should be mentioned by the activists”, implores Bhutia.

He explains that there are many locals who do not have economic knowledge about the investments, which is why they invest in the wrong places, and those projects don’t work. Due to this, the state’s economy suffers and loans taken from SBS are not recovered. 

“It’s from personal experience that 99 per cent of the loan borrowers take loans with the intention of returning it and it is only one per cent people who come to the bank with fraudulent intentions”, he adds.

“Currently, the state’s economy is not in good shape, but the steps that today’s government is initiating we are very hopeful that the state’s economy will revive in the next five to ten years. After that, there will be no question of defaulters and we will have a vibrant economy”.

Yet the public disclosure has brought up the bank under scrutiny, to which he replies, “We are answering to those people that bank doesn’t have any intention to defame anyone due to which the bank didn’t provide the direct information to Mr Nawin Kiran Pradhan but the bank’s administration complied to the orders of the state information commission. How Mr Pradhan is disclosing the information outside is his business and the bank won’t know anything is being addressed to the people raising questions. The bank didn’t provide the information to Mr Pradhan to publicise and disclose it to media”.

It should be mentioned that the bank authorities have notified post-disclosure that it is a normal practice for banks to recover loans and that any third person’s interference in this process doesn’t affect it. 

“If there were no recovery no banks will last for 52 years and there are many banks which didn’t last for even 8-10 years. In today’s date why don’t people go and ask how defaulters of State Bank of India (SBI) have Rs.10 lakh crore NPA figure”, Bhutia appended.

The bank has shown a whopping Rs. 600-700 crore of NPA figure in place of charging interest to the defaulters’ unrecovered loans for greater transparency of the accounting system of the bank.

But in the same breath, despite its transparency, SBS has stated that they have no intention of saving the defaulters. “The bank is coming hard on every defaulter. They should not expect any leniency from the bank and for the willful defaulters it is an open warning to not to take SBS lightly”.

“We appeal everyone to come to this bank and patronize it as this is Sikkim’s as well as its people’s bank. All the people of the state have been right to save the bank and take a step for the growth of the bank. We have an objective to take the bank to such level where every Sikkimese will feel proud of it”, appeals Bhutia.

He also mentioned that those defaulters who are unable to repay their loans on time due to circumstantial factors can reach out to the bank, as the bank has a secure recovery policy in place and the bank will try its best to support for their loan settlement with the prudent norms of the banking industry.

From TDR to domestic supply bills, SBS controls and manages the revenue for the state. Not only is it a piece of heritage but the citizens have held deep trust in it despite other banks taking root in the market. It is refreshing to see some accountability take place where most are afraid of speaking up against government institutions, even if it takes time. But how much longer until the RBI takes over this bank? The staggering loan amount that has surfaced might in some way snatch the credibility of Sikkim as a whole. Pointing fingers is not the prime solution - it only distracts all parties involved from accepting their faults. 

By Druhin Subba, Parijat Sharma and Sherab Palden Bhutia

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