The Bhutanese Leading the way.
Following the Anti-Corruption Commission (ACC) report that found serious administrative lapses in three ESP loans sanctioned by Financial Institutions (FIs), a key question being raised is whether similar issues exist in other ESP loans, particularly larger, medium-scale loans.
The ACC has specifically directed the Royal Monetary Authority (RMA) to conduct a comprehensive assessment of all loans approved under the medium-scale ESP category to ascertain compliance with ESP Guidelines.
In addition, the ESP Steering Committee has tasked the RMA with conducting on-site inspections of all approved ESP loans.
Following these directives, the RMA has already begun its work and has deployed teams to various financial institutions to collect information and initiate reviews.
According to a source, the RMA will review all 41 Production and Manufacturing medium loan accounts (ranging from Nu 10 million (mn) to Nu 100 mn) with total approved loans amounting to Nu 1.971 billion.
The RMA is also expected to review loans under the Production and Manufacturing Cottage and Small Industries (CSI) category (up to Nu 10 mn) and the Primary Agricultural and Livestock sector (up to Nu 1 mn).
However, given the practical difficulty of physically inspecting every small loan, the RMA may adopt a sampling approach for smaller loans. If issues are detected, further checks could follow. Another option under consideration is a full census like operation to review all loans. A final decision is yet to be taken.
Due to manpower constraints, the RMA is unlikely to conduct the entire exercise on its own, and bank staff under its regulatory purview may be deployed to assist.
An official from RMA said that the three cases investigated by the ACC have already highlighted potential gaps. The official said the review will focus on two aspects: if malpractice, deliberate wrongdoing, or collusion is found, there will be zero tolerance. However, given that the ESP was a government program implemented under time pressure and involved thousands of loans, genuine human error or unintentional lapses will be considered separately.
The RMA will determine whether the issues identified are isolated cases or indicative of systemic problems.
The RMA said it will not rely solely on the ACC’s findings but will conduct its own validation, including site visits, before deciding what administrative action, if any, should be taken against FIs, their management, or staff.
Greater focus is expected on big ticket ESP loans.
The ACC forwarded its report to the RMA on 19th December, following which the RMA held bilateral meetings with the three concerned financial institutions on 20th December to gain an initial understanding of the cases.
The ACC and the ESP Steering Committee have directed the RMA to immediately recover or cancel loans sanctioned for the three projects identified in the report. The RMA has initiated the process and is engaging with FIs, while also ensuring that any action taken is legally sound and not vulnerable to legal challenge.
The ACC has given the RMA three months to submit an Action Taken Report (ATR), necessitating swift action.
It has been learnt that while the FIs have provided initial explanations, the RMA will conduct its own deeper validation.
BDBL case: Wangchuk Blocks
In the Bhutan Development Bank Limited (BDBL) case involving M/s Wangchuk Blocks, the bank stated that the borrower had indicated in his loan application that he had already spent some personal funds and would substitute part of those expenditures using the loan.
A BDBL official told this paper that while the first tranche of Nu 34.32 mn was released, the second tranche of Nu 45.96 mn was withheld by the bank due to the borrower’s failure to produce complete receipts for the first tranche.
The official said the borrower will be given time to repay the loan, failing which legal proceedings will be initiated.
The ACC found clear diversion of ESP loan funds through unverifiable and misleading documents, along with serious deficiencies in monitoring and supervision by the ESP Unit of BDBL. Verified records from the RMA and the Bank of Bhutan Limited contradicted claims of advance remittances for machinery imports. Disbursed funds were instead used for personal expenditures unrelated to the approved project.
The investigation also revealed indications of a broader pattern of deception involving undisclosed partners, proxy applicants, and recycled project proposals.
The matter has been referred to the RMA to initiate administrative action against the concerned project appraisal officer and the General Manager of the ESP Unit at BDBL for failure to exercise due diligence. The RMA has also been asked to assess whether administrative action is warranted against Executive Credit Committee members.
The Bhutanese had earlier reported that the owner of Wangchuk Blocks had said that he had spent a part of the ESP loan money to pay off partners who had invested in the factory but later pulled out.
T-Bank and BIL cases
In the T-Bank case involving Bhutan Biscuit and Gourmet, the bank claimed that funds used prior to loan approval were its own pre-financing funds and that the ESP loan had not yet been released at the time.
The ACC found that the ESP loan was used to liquidate an existing commercial loan, contrary to the intent of the ESP, which is limited to new or upscale businesses. The ACC referred the case to the ESP Steering Committee for recovery of the full ESP loan amount of Nu 90 mn and recommended administrative sanctions against T-Bank for failure to exercise due diligence.
In earlier reporting The Bhutanese questioned T-Bank on the loan since the project had started before the loan but the bank at the time claimed it met ESP Parameters.
In the Bhutan Insurance Limited (BIL) case involving T&K Concrete Products, the ACC found that the ESP loan was sanctioned and disbursed without Credit Committee approval, in violation of internal governance requirements. Parts of the project financed, such as ready-mix concrete services, were ineligible under ESP Guidelines, and similar projects had previously been rejected by the ESP Unit.
The ACC confirmed irregular and excess disbursements, financing of pre-purchased assets, and discrepancies between sanctioned items and actual procurements. The case was referred for recovery of inadmissible disbursements amounting to Nu 32.98 mn, cancellation of the remaining undisbursed balance of Nu 15.97 mn, and administrative action against BIL and concerned Credit Committee members.
BIL is claiming that the credit committee members all signed off on the loan and the issue is more of minute keeping.
Responses and oversight
BDBL CEO, Tshering Om, said it was positive that the ACC found no corruption or collusion, though procedural lapses were identified. She said BDBL is committed to making necessary corrections, even if it tightens operational efficiency.
She said the bank has yet to receive the full ACC report and will initiate an internal process once it does. She acknowledged that mistakes could have occurred due to pressure to disburse loans within tight timelines, but said deliberate wrongdoing would invite action at all levels, including her own.
She said in the particular case of Wangchuk Blocks, the person had not shown the receipts and payments and so the loan officer had not released the second tranche but the loan officer also failed to escalate the matter to higher management.
She said from the first disbursement, the local setup had been done with machineries at the site, shed, etc., and it was not like there was nothing at site.
She said the RMA will see if there were lapses at the executive level.
The CEO said BDBL will give full cooperation to RMA from documents and assisting with any checks on the ground, and as a result of the ACC investigation, BDBL will have to be more vigilant and do more checks.
An ESP Steering Committee member said the committee is not involved in loan disbursal, which was handed over to FIs under RMA supervision from May 2024 onwards. The committee’s role, the member said, is limited to broad policy-level oversight and seeing the overall data on total amounts disbursed.
The member said the very reason to hand ESP loans over to the FIs (with a condition that FIs will pay any NPLs) was due to the fact that people had trust issues with the erstwhile BOIC that had been created outside the banking system.
The committee member said if people still have issues, they can still file complaints with the ACC and the committee by itself is committed to transparency.
The ACC clarified that although the investigation did not establish corruption offences beyond reasonable doubt in all case, it clearly demonstrated that material lapses in due diligence, supervision, and enforcement at the implementation stage created avoidable regulatory vulnerabilities, contributing to public concern and undermining confidence in the program.
The ACC said absence of proven criminal culpability does not extinguish institutional accountability.
The Bhutanese sent questions to the ACC on why the three cases did not classify as corruption for criminal prosecution among other questions but the ACC said its answer is already there in its 20th December release.
In the case of M/s Norwang Polyfab Private Limited, the ACC said no further action is warranted at this stage.
