Multiple bank officials being charged in Phajo case

It has been learnt that more than 15 bank officials cutting across the Bank of Bhutan, DrukPNB and Bhutan National Bank are involved in the Phajo Nidup case with some already being chargesheeted and others in the process of being chargesheeted by the Office of the Attorney General.

Some of the bank officials who had resigned and left for Australia were also called back by ACC.

The numbers of bank officials involved could go up as ACC does its investigation in phases given the complexity of the case.

It has been learnt that the ACC has suspended the former credit head of the Bank of Bhutan as he is part of the bank officials that are being charged to the special court set up by the Supreme Court to hear Phajo’s cases. Apart from him, other BoB bank officials associated with the Phuentsholing main branch and Gedu branch have been charged. Staff from the Phuentsholing BoB Sabzi Bazar branch will also be charged soon. A couple of BoB officials were recalled from Australia.

OAG is also expected to charge bank officials from the DrukPNB Bank and BNB in the coming days and weeks. The ACC earlier had already detained the Deputy CEO of DrukPNB and a credit officer as part of its investigations. More officials are expected to be involved.

Phajo’s biggest Non Performing loans are in the BoB and Druk PNB with both banks having given him loans above Nu 300 mn each which means around Nu 600 mn plus in total which are all in NPL.

In the case of DrukPNB just one loan account came to Nu 250 mn for Phajo.

A few bank officials from BNB including a terminated staff and another who left to Australia are also expected to be charged.

The bank officials above are being charged on the basis of an investigation by the ACC looking into how Phajo could fool the entire banking system to run up a Nu 800 mn Non Performing Loan with double and triple mortgages.

The fact that they are being charged shows that the ACC must have found some collusion between these bank officials and Phajo in getting the loans as they would not have been charged if they had followed the normal banking process and even made genuine mistakes.

Phajo had given these bank officials money and also gifts in kind to facilitate loans for him and overlook banking rules and even outright fraud.

Both the ACC and OAG remained tightlipped about the investigation, suspensions and charges despite numerous attempts to get information.

However, there have been Royal Audit Authority (RAA) findings on Phajo’s loans in BoB, RICBL, BNB and BDBL in audit reports covering 2018 to 2020 for BoB, 2019 to 2021 for BNB and BDBL and 2020 to 2021 for RICBL.

Phajo also has questionable loans in DrukPNB and T-Bank but these two private companies are not audited by RAA though they have also been looked at by the ACC.

ACC had sent around 10 cases to the OAG of which five had been charge sheeted and these are the 3 National Land Commission officials Phajo had bribed to print duplicate lagthrams, RSTA officials bribed for fake bluebooks, Phuentsholing Thromde land record officials who were supposed to let banks and people know of Phajo’s double and triple mortgaged lands and two cases to do with BoB officials.

The remaining five to be charged soon are 1 case of BoB of Sabzi Bazar Branch in Phuentsholing, 1 BNB case, 1 DrukPNB case, 1 Phuentsholing Dungkhag and 1 bribery case of police personnel.

The bank officials being charged are mainly to do with assessing and disbursing loans to Phajo.

ACC is looking at the RICBL, BDBL and T-Bank to see if there is anything wrong there too.

BoB

The RAA found 41 loans against Phajo or those guaranteed by him in BoB totaling Nu 303.63 million (mn).

The majority of the loans are from the Phuentsholing Main Branch of BoB followed by the Gedu branch and the Phuentsholing Sabzi Bazar branch.

The RAA found that in 11 loans the bank gave the loans before the lien confirmation which is a confirmation by the Phuentsholing Thromde that the land does not have other loans.

It said as a result of loan disbursement prior to obtaining of lien noting confirmation, it had provided opportunity to Phajo Nidup to avail loan from other financial institutions using the same collaterals. RAA says this is due to possible collusion too.

The other issue which showed the failure of both Phuentsholing Thromde and the bank was the acceptance of double lien notings which is failing to stop the same asset from being charged to multiple loans.

The bank had sanctioned multiple loans to different clients against the same collaterals in portion of the same plot and obtained lien noting for the same.

In the case of 17 transport loans the client in order to avail the loans had executed the hiring agreement with its own business and submitted the hire agreement to the bank as source of income for repayment of loans from different branches.

It was observed that multiple loans were sanctioned from different branches. The RAA said the credit officials of these three branches were fully aware of the growing credit volume of the client, most of which were sanctioned based on collaterals with multiple lien noting date, acceptance of portion from the same plot of land, and on poorly assessed source of income for repayments besides disbursements being made prior to obtaining of the lien noting confirmation.

It said all these chain of events point towards premeditated attempt to defraud the bank. However, the client alone could not have possibly circumvented the due process without the involvement of the credit officials.

Two loans from Gedu branch and Phuentsholing branch of 16.2 mn were supposedly sanctioned based on forged work order submitted by the client.

In the case of 11 loans the branch offices it was observed that the bank had accepted same collaterals for different clients.

The Gedu Branch office had sanctioned Transport Loan to Phajo Nidup amounting to Nu. 1.9 mn against a land of a bank staff that was already mortgaged by the bank staff to the same bank.

On review of the Interest Payment Support (IPS) provided to Phajo Nidup by the government and the bank revealed that the client was extended IPS of Nu. 29.390 mn despite most of the loans being fraudulently availed from the bank.

The Gedu Branch office had sanctioned Transport Loan of Nu. 1.975 mn to Phajo’s wife despite the CIB report showing NPL with Bhutan National Bank Limited.

BNB

In the case of BNB there were 17 loans amounting to Nu 57.176 mn sanctioned to Phajo Nidup and his related parties.

On review, it was noted that the bank had sanctioned eight loans amounting to Nu. 33.548 mn which had multiple lien noting on collaterals with other financial institutions.

The RAA said it strongly indicated there are possible element of collusion with the bank’s staff.

On review, it was noted that the bank had sanctioned five loans amounting Nu. 19.832 mn without obtaining lien noting in violation of regulations.

It was noted that the bank had sanctioned six loans amounting to Nu. 9.279 mn based on the third party collaterals backed by the sale deed. However, on obtaining the ownership certificates and individual lagthram by the client, these collaterals were not updated and charged against the sanctioned loans and instead the lien were kept against the old thram and plots. This had essentially enabled the client to further obtain loans from the other financial institutions.

The bank had discharged six collaterals that were secured against loans under NPL. This was in contravention of the Credit Policy 2017’s substitution and release of collateral provision.

On review of the Interest Payment Support (IPS) provided to Phajo Nidup by the government and the bank revealed that the client was extended IPS of Nu. 6.98 million despite most of the loans being fraudulently availed from the bank.

BDBL

Following a review of the loan files, it was noted that Phajo Nidup was granted three loans amounting to Nu. 16.400 mn and as of the date of the audit, his loan outstanding aggregated to Nu 20.409 mn of which two are term loans and one is overdraft facilities.

On review, it was noted that the bank had sanctioned two loans amounting to Nu. 15.700 mn which had multiple lien noting on collaterals with other financial institutions.

It was noted that the bank had discharged original lag-thram No. 1589 and 2148 registered in the name of Phajo Nidup which was pledged as collateral against Nu. 15 mn loan.

The temporary release of Lag-Thram was accepted by the bank and reason mentioned was the change in ownership of the land since the total land under his name has reached the maximum limit.

Phajo Nidup had applied for Agriculture and Animal Husbandry Loan of Nu. 700,000 from the Phuentsholing branch but did not use it for that purpose.

RICBL

On review of the loan files, it was observed that 10 loans were sanctioned to Phajo Nidup of which one loan was liquidated on 30/09/2019 and three loan were merged. The loan was around 42 mn.

The audit on comparing the collateral details provided by the legal division with that of collaterals recorded in the system observed that some of the collaterals were not recorded in the system.

The non-recording of the collateral details in the system would lead to providing of wrong information to Credit Information Bureau (CIB) as the financial institutions serves as the main source of credit information to CIB.

Rationally, only one collateral code should be assigned against each collateral based on the Thram number and plot number. The collateral code serves as a reference point for credit appraising officials in determining the LTV while sanctioning of loans. However, on review it was observed that the Corporation had assigned multiple collateral codes to the same collateral.

The Corporation had fixed rates for the valuation of land for different location as per the accessibility of the basic amenities. However, on review of the land valuation rates, it was observed that different rates were applied for land under the same Thram number and plot number.

It was observed that the Corporation had sanctioned loan aggregating to Nu. 3.318 mn on despite the CIB report reflected 25 NPLs against the client with various other financial institutions.

The review of the Interest Payment Support (IPS) provided to Phajo Nidup revealed that the client was extended IPS of Nu. 5.209 mn despites most of the loans were fraudulently availed by the client.

The banks have filed recovery suits against the borrower and related borrowers in court while a criminal complaint had been lodged with the Anti- Corruption Commission (ACC).

There are around 60 civil cases against Phajo of which around 28 are with the banks and the rest are with private parties over land and money transactions. The cases are mainly in Phuentsholing and Chukha, but some are also in Thimphu and Paro.

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