A construction company got registered as a private limited company in 2016 and within only four years it has been able to secure Tk640 crore from two state-owned banks. This has now become a big headache for the central bank.
It is not clear how a young and little-known company – Dolly Construction – could earn so much confidence from the banks to secure such high amounts and that too through "massive irregularities" as the Bangladesh Bank investigation has pointed out.
Despite being a large borrower, the loan account of Dolly Construction has not even been reported to the Credit Information Bureau (CIB) database of the Bangladesh Bank in the last five years, a mandatory requirement in the banking law.
The CIB report has a substantial impact on decisions regarding sanctioning, renewal, rescheduling and adjustment of credit facilities by banks.
It assists in knowing the loan status and repayment behaviour of a customer.
Banks get reports from the CIB database of a borrower before granting them fresh financing. So, if a borrower is not reported to the CIB database by banks, its loan status cannot be verified by other banks. Even the Bangladesh Bank will remain in the dark about that loanee.
The investigation of Bangladesh Bank also found more than 50 irregularities in the loan process to the borrower, which, it says, poses serious risks for both banks.
The loans were given against work orders which the central bank suspects as "fake" and thinks the banks cannot recover the money from the construction company.
The central bank investigation team found "registered lien" of the work orders.
The other anomalies include inadequate collateral, violation of single borrower exposure limit, ignoring loan approval conditions, etc.
Loans were not classified despite non-payment of instalments. The managing director of one bank provided a bank guarantee to the company beyond his authorised ceiling, according to the BB investigation report.
It found that the borrower was given all kinds of undue favour by the two banks' officials of various statuses.
Even, the management of Rupali and Agrani placed loan proposals of the borrower to their board concealing information about the borrower's loan and repayment status.
Based on the findings of the investigation conducted in February this year, the central bank issued a show-cause notice to the two state-owned banks in September citing the anomalies.
In reply, the banks failed to explain the anomalies, and in some cases, they just acknowledged violations.
The Bangladesh Bank is now in the process of taking action against the two banks.
The Business Standard contacted Dolly Construction Managing Director Mohammed Nasir Uddin to talk about the allegations.
But Nasir sent a curt SMS reply, "Please contact the branches concerned."
He also refused to talk to this TBS reporter when she went to his office for comments.
Asked about the loan irregularities, Mohammad Shams-Ul Islam, managing director of Agrani Bank, partly disagreed with the central bank investigation findings.
He said irregularities are not "as much as have been identified" by the Bangladesh Bank.
However, about not reporting Dolly's loan account to CIB database, he said it was an error.
CIB reporting is very important and a basic norm to follow, Mohammad Shams-Ul Islam acknowledged the fact and said Agrani manually gives input into the CIB database, and "that is why it somehow went unreported".
He also contested the central bank investigation and claimed the borrower has adequate collateral and regular payment.
"But now, Agrani bank will not give any further renewal and adjust the loan within one month following the Bangladesh Bank instruction," he said.
The loan anomalies were similar in nature in the case of Rupali Bank.
Contacted, Md Sarwar Hossain, manager, Motijheel corporate branch, said, "Rupali sent information to the Bangladesh Bank several times, but that did not get into CIB database."
About other issues of non-compliance, Md Sarwar Hossain defended his bank, saying that they were compliant although there were some shortcomings but not of serious nature.
Anomalies in Rupali Bank
The Motijheel corporate branch of Rupali Bank gave a total loan of Tk525 crore to Dolly Construction.
At the first loan proposal in 2016, a Tk23.31 crore was approved holding liens on 12 work orders in 2016, but the investigation found no registered work order with the bank. In the next loan approval, no registered lien work order was found. As no work order was found registered, there was no primary collateral against the loan, said the report.
Dolly Construction converted into a private limited enterprise in August 2016, but necessary documents, including individual information of its directors, board resolution and income tax certificate were not updated with the bank.
In the loan document, the construction company did not declare the name of its other subsidiaries.
Ownership of Udoy Trade International transformed to Dolly Construction
Mohammed Nasir Uddin got the ownership from his brother Jahirul Islam in May 2016. The bank had a loan of Tk20 crore against the company at that time. Though the ownership was changed, it was not reported to the CIB database in the last five years.
The bank disbursed loan even without issuing a loan approval letter, which is an agreement between a bank and a client, and which is the legal document for the bank. If there is no loan approval letter, the bank cannot claim the loan legally in the court if any legal issue arises.
The bank approved loan, violating all basic conditions of board approval. For instance, the construction company was approved for a loan against its sub-contract work order of river dredging. So, there was a condition of a tripartite agreement among the main contractor, the sub-contractor and the bank. But the bank did not sign the agreement. Even the bank did not complete the process of holding lien on work order in the case of loan disbursement, violating the condition of loan approval.
Although the bank disbursed a huge amount of loan, it did not conduct any inspection over the proper use of loan.
The managing director of Rupali Bank approved the bank guarantee of Tk2.91 crore beyond his authority and the loan was approved violating the board-approved conditions.
In reply to the show-cause notice to the central bank, Rupali Bank acknowledged that its managing director violated the loan approval rule.
Rule violation by Agrani Bank
Despite having a restriction from the central bank about further loan disbursement, the bank disbursed Tk8.80 crore to the construction company in March this year. Moreover, until August this year, the bank did not report the Dolly Construction loan account to CIB database which is a grave violation, according to the investigation report.
The probe found the bank not holding any registered lien on the work order belonging to the construction company against which the loan was disbursed. The client has a collateral shortfall of Tk110.58 crore with the bank.
According to the work plan, the client will be allowed to withdraw the highest 70% of its loan limit and the next withdrawal will be after adjusting its previous bill. But the bank did not comply with the condition.
In the account opening document of Dolly Construction, no loan statement was given. Even the client's introduction was not given in the KYC (Know Your Customer) form which is a violation of BFIU (Bangladesh Financial Intelligence Unit) rule.
The construction company provided fake audited financial statements to both Agrani and Rupali bank. There is no consistency in the two financial reports provided to the two state-owned banks.
The investigation recommended taking action against respective chartered firms that prepared the fake financial reports.
Profile of Dolly Construction
Dolly Construction is a sister concern of Dolly Group. The construction company works for the development of roads, bridges, culverts, and river protection, etc. with the collaboration of LGED, RHD, BWDB, PWD, etc. according to its website.
Dolly Akter is the chairman and Mohammed Nasir Uddin is the founder managing director of the group.
The annual turnover of the group was Tk235 crore on an average in the last five years.
The other subsidiaries of the group are Dolly Travels International, Dolly Auto Bricks, Dolly Auto Spinning Mills, Dolly Green Sweater, Dolly LNG, Dolly Knit & Dyeing, Redoy Enterprise, Redoy Trader and Udoy Trade International.