… in multiple loans availed to a businessman

Rinzin Wangchuk 

The Anti-Corruption Commission (ACC), which has launched investigation on the Phajo Nidup case in November last year, is now reportedly looking into the possible collusion between bank or thromde officials and Phajo while sanctioning and disbursing loans to the businessman.

ACC officials refused to share or update on the investigation status.

However, Kuensel learnt the thromde officials in Phuentsholing and an official from Road Safety and Transport Authority (RSTA) in Thimphu were already questioned to find out how the businessman managed to mortgage his same land multiple times with financial institutions and fraudulent registration of vehicles.

ACC is now reportedly zooming on to the financial institutions. Among the financial institutions, Phajo has a total NPL of Nu 300 million (M) NPL with BoBL, out of which Nu 150M was on the collateral for others.




Over the last few years, all financial institutions in the country including some land buyers fell victim to Phajo Nidup in Phuentsholing and Thimphu. He had availed multiple loans of around Nu 680M by mortgaging the same land and properties more than two with banks.  Most loans are currently under non-performing loans (NPL).    

Kuensel sources also said that ACC recently interrogated three former bank officials and a current official. They served in BoBL branch offices in Phuentsholing and Gedu as branch manager, loan manager and loan officer. One of them had to defer his travel abroad because of the ongoing investigation.

Phajo Nidup’s case was exposed in June 2022 after a land owner in Paro lodged a complaint at the Taba community police in Thimphu against the businessman who issued him two fraudulent cheques of Nu 23.2M for the land the accused bought. Following this, many private individuals filed cases against Phajo, who was also defaulting loans.




Getting around the  system

As per existing rules, a financial institution shall ensure that their claims on assets provided as mortgage or collateral against their loans are registered with appropriate authorities. In the case of Phajo Nidup, land transactions were carried out mainly in Phuentsholing thromde, the custodian of the land and fixed assets.

A borrower who mortgages land has to deposit the original lagthram with the bank after completing all the formalities and endorsement of lien noting from thromde or national land commission secretariat (NLCS).  A lien is a legal right to claim a security interest in a property provided by the owner to a creditor.

Sources said Phajo was holding more than 40 lagthrams registration in his spouse’s names and made several copies to defraud the banks.

The Royal Audit Authority (RAA) in 2022 found that BoBL had disbursed 11 loans to Phajo before receiving the lien noting confirmation, which violated its credit policy. The policy states that bank’s mortgage charge should be noted with concerned municipal authority prior to the release of the loan.

The duration for the lien noting confirmation ranged from three days to 728 days after sanctioning of the loans. The huge time gap between the loan disbursement and obtaining of lien noting confirmation had provided opportunity to Phajo to avail loan from other financial institutions using the same collaterals. “This had facilitated the client in availing multiple loans from the banks and other financial institutions, which are all under NPL,” the annual audit report stated.




BoBL’s findings

The RAA in its annual report of 2022 highlighted some elements of fraud and corruption in sanctioning loans and mortgaging properties. For instance, the BoBL’s branch offices in Gedu and Phuentsholing had sanctioned two overdraft loans amounting to Nu 16.2M to Phajo without validating the work order submitted to avail overdraft loans.

The audit observed that the bank had received all the necessary documents including departmental undertaking letter from Pelden Tashi Choling Shedra, Phuentsholing with its seal and sign. The loans were sanctioned based on forged work orders submitted by the client, which was later confirmed by the principal of Pelden Tashi Choling Shedra.

The Gedu branch office had sanctioned transport loan of Nu 1.9M to Phajo by colluding with a loan officer of the Bazar branch, Phuentsholing. Phajo had mortgaged land measuring 2,240 sqft along with two storied building at Gelephu Throm belonging to the loan officer. The sale deed between Phajo and the loan officer was signed on April 30, 2018 for Nu 160M and the land owner had also consented to stand as a guarantor after 11 days. However, the audit found that the properties were already hypothecated with the bank for staff housing loan the officer availed in 2016.

The RAA also found that the Gedu branch office sanctioned a loan of Nu 8.427M, beyond their sanctioning authority as per the Delegation of Loan Sanctioning Authority (DoLSA). To circumvent the limit, the loan were fragmented to Nu 5.618M and Nu 2.809M and then sanctioned to Unicorn Infra Pvt. Ltd. The loans were appraised by loan appraisal officer and approved by branch manager.

Phajo helped the managing director of Unicorn Infra Pvt, one of his clients, to avail the loan by mortgaging two acres of land in 2018. “There was a clear indication of collusion between branch officials and the client,” the audit report stated.

As per the DoLSA, branch manager in Phuentsholing can sanction a loan up to Nu 15M for single borrower and Nu 60M for group, while the Bazar and Gedu branch offices can sanction Nu 8M for single and Nu 50M for group.




BDBL

The BDBL had sanctioned two loans of Nu 15.7M to Phajo Nidup based on collaterals which had multiple liens with other financial institutions. “Such instances of several lien noting of collaterals indicated that the lien noting agencies Phuentsholing Thromde and Chukha dzongkhag had failed to verify the securities from being charged to multiple loans,” the RAA pointed out.

The BDBL’s Phuentsholing branch had sanctioned irregular agriculture and animal husbandry loan, Nu 0.7M, to Phajo. It was applied for fencing a cardamom orchard on land owned by a local farmer. The RAA found that the owner had authorised her land to avail loan, but there was no lease agreement or sale deed to indicate that the orchard belonged to Phajo. “The client had taken advantage of the letter of authorisation the land owner provided and the bank officials had favoured the client in sanctioning the loan,” it stated adding that there was willful intent to defraud the bank by colluding with the client.

The BDBL had released two original lagthrams of Phajo, pledged as collateral security against the loan of Nu 15M. The bank had released the lagthrams based on the undertaking letter submitted by the client. This, the audit attributed to weak internal control system and inadequate credit risk management.

RAA also noted that there was an inherent problem with the Core Banking System (CBS) as it lacked complete details of loan records and related information right through loan origination until its closure. In the absence of such vital information in the CBS system, the credit officials have made a dysfunctional credit decision detrimental to the interest of the bank. It stated, “The way the client easily slip through different layers of the control system to obtain multiple loans, strongly indicated an element of collusion with the bank’s staff.”




BNBL & RCBL

The BNBL had sanctioned eight loans amounting to Nu 33.549M to Phajo who had multiple lien noting on collaterals with other financial institutions. The client was able to obtain multiple loans on the same collateral through different lien noting on the collateral. The report stated that the credit apprising officials have failed to verify the lien noting on the loan security.

“This has occurred apparently due to lack of proper documentation and recording system in CBS besides failure on the part of credit officials to diligently review and verify the loan documents,” the report stated. “In the absence of vital information in the CBS system, credit officials have made a dysfunctional credit decision detrimental to the interest of the bank.”

The RICBL had provided extension of interest payment support (IPS) of Nu 5.209M to Phajo despite most of the loans being fraudulently availed by the client.




T-Bank & Druk PNB

Phajo has 11 loan accounts with T-Bank amounting to Nu 14M which is currently under NPL.

However, Kuensel could not get the total amount of NPL Phajohas with Druk PNB.  He had acquired more than five acres of land from an owner in Pekarzhing, Phentsholing after the land owner failed to pay a loan of Nu 28M to Druk PNB.

Sources say that Druk PNB has about Nu 30M NPL against Phajo, who fraudulently sold land to more than 12 buyers without transferring the thrams but managed to mortgage double in Druk PNB as well as in RICBL.

As per the credit manual, financial institutions are, as a matter of routine, require their borrowers to furnish a periodic written statement confirming that the assets mortgaged or pledged as collateral is still in his/her possession, or in the possession of the third party who agreed to place the assets as security against the loan.

Meanwhile, bank officials said that with the establishment of land management system by NLCS last year, they can now easily find out the particular land is mortgaged with which bank.