Thrissur: There is more to the CPM-controlled Karuvannur Service Cooperative Bank than the remortgaging of properties of borrowers on the sly and giving multiple loans to the same persons on overvalued assets.
The enterprising employees and their political masters offered bespoke solutions to prospective fraudsters to swindle the bank of crores of rupees. Here's how they used chit fund schemes as the special purpose vehicle to help two persons move Rs 31 crore out of the bank.
Anil Kumar K B is a real estate player from Venginissery in Thrissur's Paralam PO. That he lived outside the jurisdiction of Karuvannur Service Cooperative Bank did not stop the board of directors and employees from first, illegally giving him membership to the society and then, "creating an opportunity for him to take full control of a monthly deposit scheme", said an attachment order of Directorate of Enforcement (ED).
How was the opportunity created?
In 2017, the bank allowed Anil Kumar to subscribe to all 100 tickets of a Rs 10-lakh monthly deposit scheme, in which each member's monthly share was Rs 10,000. (Monthly deposit scheme is another name for chit fund.)
That flew in the face of logic because he would have to shell out Rs 10 lakh every month to keep the scheme running. But Anil Kumar and the bank had other plans. He used his initial investment in the monthly deposit scheme as collateral and took loans worth Rs 6 crore, according to the ED report.
There was no repayment but the bank would not add the amount to its arrears till the end of the monthly deposit scheme, leading to depletion of the bank's assets, it said.
When he had an outstanding loan of Rs 8 crore, the bank lent him more through mortgage and business loans. As of December 31, 2022, Anil Kumar owed Rs 18.94 crore to the bank.
Anil Shivaji Jagadale, alias Anil Subhash, who runs a gold jewellery business, subscribed to 50 tickets of a monthly deposit scheme. He also took 35 loans showing the investment in the MDS as collateral, said the ED's attachment report dated October 13. He owes Rs 12.13 crore to the bank.
The two Anils are the third and fourth biggest defaulters of Karuvannur Service Cooperative Bank. Together, they owe Rs 31 crore to the bank, or nearly 10% of the Rs 343 crore defaulted by 90 borrowers.
Chit fund or monthly deposit scheme
A quick word on the monthly deposit scheme (MDS) which is another name for chit fund or chitty or curries. Subscribers would deposit a pre-agreed amount in a pot every month, and the foreman who runs the scheme can either conduct a draw to pick the 'prized subscriber' or hand over the pot to the lowest bidder. The process goes on till all the subscribers get the prize money. It is a savings-cum-credit scheme.
According to the Chit Funds Act of 1982, loans and advances can be given to subscribers only on the subscriptions paid by them. "A subscriber can borrow 50% to 80% of the monthly share she invested in the scheme, not on the full prize money," said the managing director of a CPM-controlled farmers' cooperative bank in Kasaragod.
A former director of Karuvannur Bank said the monthly deposit scheme was designed to swindle money out of the bank. "Else why would a bank allow one person to buy all 100 tickets? Normally, one person is allowed to subscribe to three to five tickets in a chit fund else it would affect the bidding," he said, and added that he held the then bank secretary Sunil Kumar T R responsible for the chit fund scam.
The former two-term director, however, said chit-fund subscribers can take loans if they put up properties as collateral.
Karuvannur Bank allowed chit-fund subscribers to take 'mortgage loans' to circumvent the law. According to the Kerala Cooperative Societies Act, of 1969, cooperative societies can give membership only to residents in their jurisdiction, and mortgage loans are available only to such members.
Those from outside the bank's area of influence can become 'C Class' members, who can own savings bank accounts and are eligible only for loans against gold. They do not have voting rights and certainly cannot take unsecured personal loans or mortgage their properties to take business or home loans, both were given to Anil Kumar.
According to the Karuvannur bank's bylaw, it can function only at Porathissery, Madayikonam, and Irinjalakuda villages -- all within Irinjalakuda municipality -- in Mukundapuram taluk. Anil Kumar mortgaged "overvalued" wetlands outside the bank's jurisdiction to take the loans, said the ED's attachment report.
Low liability and high returns
The liability list submitted by Karuvannur bank's secretary in-charge Sreekala E S said the bank had extended Anil Kumar K B of Venginissery five mortgage loans, six business overdraft loans, and 12 loans against his chit fund deposits.
Mortgage loans of Rs 2.5 crore were given to his five benamis in 2017 and 2018 and the business overdraft of Rs 2.75 crore was availed by him, his wife Shalini V J, and four other members in 2014 and 2015. Anil Kumar took loans worth Rs 5 crore against the monthly deposit scheme and 10 loans worth Rs 10 lakh each against his kurries - all in 2017. In all, he took 23 loans of Rs 11.25 crore between 2014 and 2018. As of December 31, 2022, his liability to Karuvannur Bank stood at Rs 18.94 crore.
A part of the loan he took went back into the chit fund to keep the scam running, the rest mostly went into buying properties and investing in the stock market, the report said. The loans were periodically renewed.
Prashanth Kumar, the Deputy Director of ED Kochi Zone, found around Rs 40,000 in his five bank accounts. The officer attached four plots, mostly wetlands, at Pangarappilly at Chelakkara, Potta at Chalakudy, Chazhoor in Thrissur, and Thengumkkara at Thalappilly taluk. But the plots have a combined value of only Rs 1.22 crore.
Anil Shivaji Jagadale, who subscribed to 50 of the 100 tickets of one monthly deposit scheme, took 47 loans from the bank in 2015, 2017, and 2018. Thirty-five of them are loans against curries and monthly deposit schemes.
The bank gave him 22 loans of Rs 10 lakh each, and nine loans of Rs 5 lakh each against his shares in two monthly deposit schemes. On top of that, he was given three loans of Rs 28 lakh, Rs 42 lakh, and Rs 35 lakh in 2015 against his three monthly deposit schemes.
The bank also gave him 11 mortgage loans, 10 of them in the name of his relatives and friends and one in the name of his wife Radha Anil. Of the 11 loans, eight were of Rs 50 lakh each, two were of Rs 45 lakh each, and one loan was of Rs 33 lakh.
In all, Anil Shivaji Jagadale owes Rs 12.13 crore to the bank as of December 31, 2022. In his statement to the ED, Anil Shivaji Jagadale reportedly said that he could not repay the loans because of higher interest rates, demonetisation, and the Covid pandemic.
He used the money to buy up properties in Thrissur. The ED has identified 28 plots owned by Anil Shivaji Jagadale in Chevoor, Arattuppuzha, Kodanoor, Cherppu, Paralam, Koorkencherry, and Padiyam villages of Thrissur taluk. The plots add up to 5.19 acres and are valued at Rs 9.89 crore. The central agency investigating money laundering cases has attached all 28 plots, pending inquiry into the scam-hit Karuvannur Service Cooperative Bank.
Not a con job but an inside job
ED said in its attachment order that the employees of the bank had tampered with software and deleted entries and dates. So it is not able to identify the exact date on which these fraudulent loans were sanctioned.
For instance, according to the report of the bank's Secretary in-charge Sreekala, Anil Kumar K B of Venginissery took 23 loans worth Rs 18.93 crore in 2014, 2015, 2017, and 2018. But in his statement to the ED, he reportedly said his loans with Karuvannur Bank dated back to 2010.
He was given membership by the then manager Biju M Kareem and the then secretary Sunil Kumar T R, the ED report said.
The central agency said Anil Kumar mortgaged water-logged land to procure high-value loans. When the bank loaned him Rs 3 crore on the collateral of a monthly deposit scheme, Anil Kumar had pledged 2.38 acres of wetland at Chelakkara municipality in Thalappilly taluk. The then manager Biju M Kareem appraised the value of the land at Rs 6 crore. "It appears that the appraisal value recorded is not correct," ED said in its report.
It could easily be the most understated sentence in the 107-page report. For, when the agency attached his properties, the plot was valued at Rs 19.37 lakh.
