Reserve Bank of India
Department of Co-operative Bank Supervision
Mumbai Regional Office
The City Co-operative Bank Limited, Mumbai
Inspection under Section 35 of the Banking Regulation Act, 1949 (AACS) —
Financial Position as on March 31, 2017
1. Introduction and Overview
1.1 The XI inspection of The City Co-operative Bank Limited, Mumbai was conducted
between December 04 and 12, 2017 with reference to its financial position as on March
31, 2017 (Date of Present Inspection-DP!) covering the period between April 01, 2016 and
March 31, 2017 (the present period under review PPR). The bank was last inspected with
reference to its audited financial position as on March 31, 2016 (Date of Last Inspection-
DLI). Particulars of important items of liabilities and assets as on the DLI and the DPI have
been furnished in Annex-I. The inspection report is based on the audited books and
records of the bank, the retums and other information furnished by the bank and
information obtained from other sources believed to be reliable.
1.2 Based on the financials as assessed in the inspection report as on March 31, 2015, a
Supervisory Action Framework (SAF) was imposed on the bank vide RBI letter No.
DCBS.MRO.BSS-I/ 2915/ 12.07.039/2016-17 dated November 23, 2016 with major
restriction of distribution of divided, exposure to sensitive sector, reduce single and group
exposure limit, etc. The bank had generally adhered to the instructions except non
adherence to the single borrower iimit in some accounts as mentioned in para 5.1.2(il) of
the inspection report. (Action)
2. Paid up Capital, Capital Adequacy, Solvency and Net-worth
2.1 The paid-up share capital (at book value) increased from 1051.82 lakh as on the DLI
‘to 1062.48 lakh as on the DPI, posting an increase of 710.66 lakh (1.01%) since the DLI.
The increase in share capital was mainly due to contribution by the new members.
2.2 The details of total assets, risk-weighted assets (including off-balance sheet items),
Tier | Capital, Tier I Capital and Capital ratios as on the DLI and the DPI are furnished
below: (@ in lakh)
SI. As reported by the bank | As assessed by the [0
No. | Particulars 31.3.2016 | 31.3.2017 | 31.3.2016 | 31.3.2017
4 Total Assets 63453.18 | 70555.28 63453.18 | 70555.28
2 Risk Weighted Assets 33139.62 | 31252.06 30858.99 | 24470.45
3 Tier | Capital 2452.42 482.66, -1581.51 -7018.26
4 Tier |i Capital 915.10 872.24 970.81"
Capital funds 3367.52 1364.90 | -1581.51
5 | Tier! (%) 7.40 | 1.54 | -5.12 |The City Co-operative Bank Lic, Mumbsl
‘Statutory Inspection as on March 31, 2017
6 [Tier il (%) 2.76 1.55 = -|
7__| Overall CRAR _(%) 10.16 3.09 | 5.12 -28.68 |
* The total of Tier il elements are to be limited to a maximum of 100 percent of total Tier | elements for the
Purpose of compliance with the norms as per para 4.3 of RBI Circular DCBR. BPD. (PCB). MC. No. 10.
109.18.201 /2016-16 dated July 1, 2018. None of the tier II elements was taken into consideration while
arriving at total capital for CRAR purpose in this bank.
2.3 The assessed CRAR of the bank deteriorated from (-) 5.12% to (-) 28.68% during the
period under review (PPR), mainly due to observance of high level of divergence in the
loan portfolio of the bank. With CRAR assessed at (-) 28.68%, the bank had not adhered
to the requirement of minimum of 9% as prescribed in para 4 (iii) of RBI circular DCBR
BPD. (PCB). MC. No.10 /09.18.201 /2015-16 dated July 1, 2015 (Action)
Solvency/ Net worth
24 The realizable value of the assets of the bank after making provisions and
depreciation of the bank assessed at %53116.55 lakh was less than the outside liabilities
at %60087.31 lakh as.on the DPI as worked out in Annex-VI. The real or exchangeable
value of paid-up share capital and reserves (net-worth) was assessed at & (-) 6970.76
lakh. The divergence between the book value and the assessed value is analysed in
Annex VII.
2.5 There had been a deterioration in the real or exchangeable value of paid-up capital
and reserves since the DLI, when it was assessed at 1526.07 lakh.
2.6 With the real or exchangeable value of paid-up capital and reserves at ® (-) 6970.76
lakh, the bank was not considered to have adequate assets to meet its liabilities as
required under Section 22 (3) (a) of the Banking Regulation Act, 1949 (AACS). Further, it
had not complied with the requirement of minimum capital and reserves prescribed under
Section 11(1) of the Act, ibid. (Action)
2.7 The Assessed Net worth (ANW) further showed that with reference to the book value,
the paid-up share capital and reserves of the bank were not intact. The real or
exchangeable value of paid-up share capital and reserves. was negative with respect to
outside liabilities as on the DPI. The assessed loss had eroded the capital and reserves
fully and the deposits to the extent of 11.89%.
3. Funds Management
3.1 The profile of the deposits of the bank for the last two years is as under:
(@ in lakh)
Particulars ‘AsonDLI | AsonDPI | Varlation (%)
Total Deposits 53424. 86 58624.29 9.73
Term deposits ‘40979.14 4336.82 5.83
(76.70%). (73.97%) | .
| 42445.23, 15256.08 22.50
|___ (23.30%) (26.03%), IE
Page 2 of 14u
The City Co-operative Bank Lid, Mumbai
‘Statutory Inspoction 2s on March 31, 2017
Non-resident Deposits 0.49 0.49) “|
(% of total deposit) (Negligible) (Negligible)
Top 20 Depositors 825.65 817.96 (0.93)
(% of total deposit) (1.55%) (1.40%) |
‘Total number of depositors 96491 ___ 96589 0.40
Number of depositors having | 86638 84840 (2.08)
deposits up to %1.00 lakh
3.1.1 The total deposits increased by 9.73% during the PPR primarily due to a growth of
22.59% in CASA deposits. The bank's deposit base is widespread as contribution from top
20 depositors gradually declined from 1.55% as on the DLI to 1.40% as on the DPI.
3.1.2 The bank revised its interest rates on deposits three times during the PPR, which
were reduced gradually in line with the market trend. Interest rate offered on term deposits
were ranging from 5% to 7% as on the DPI. Consequently, the average cost of deposits
declined from 8.42% during 2015-16 to 8.38% during 2016-17.
3.1.3 The maturity profile of term deposits as on the DPI revealed that 14.79% of the term
deposits were repayable within a period of one year, followed by 9.72% repayable within
one to three years whereas 75.49% of the term deposits had 2 maturity period beyond
three years,
3.1.4 The bank had total matured term deposits of 33.58 lakh for which the bank had
made a provision of 83.55 lakh under interest payable in the balance sheet
3.1.5 The bank had an overdraft facility of 2300.00 lakh with the Sangli Urban Co-op. Bank
Ltd. to borrow to address temporary liquidity mismatches against its fixed deposits.
However, no borrowing was outstanding as on the DPI. It had paid an interest of 22.03
lakh during the PPR. As on the DPI, there was reconciliation difference of 80.03 lakh for
more than 3 years in the deposit held with other banks, hence, it was considered as
erosion while assessing Net worth, profit and CRAR: (Action)
3.2 Credit-Deposit (CD) ratio of the bank decreased from 67.87% as on the DLI to 58.56%
as on the DPI due to negative growth (5.32%) in credit offtake coupled with growth in
deposits (9.73%) during the PPR.
4, Investments
4.1 Compliance with various regulatory/statutory norms: The bank had adhered to
investment related regulatory limits/prescriptions such as gross and single inter-bank
‘exposure norms, investment in non-SLR securities, etc. during the PPR. While the
average yield on'SLR increased from 8.02% during 2015-16 to 9.88% (inclusive of profit inThe City Co-operative Bank Lid, Mumbai —~
‘Statutory Inspection as on March 31, 2017
‘ading in securities), the average yield on non-SLR investments declined from 6.16% to —
6.05% during the corresponding period.
4.2 Classification: The bank classified its investments under Held To Maturity (HTM) and
Available For Sale (AFS) categories. The details of the investment portfolio as on the DLI
and the DPI are as under: (in lakh)
Classi DU I DPI | Change |
SLR| _Non-SLR Non-SLR ()
HTM 711904.03 | 40.99 | 2. 40.99 | -20.72 |
AFS 3986.60 | 0.00 9381.31, 0.00 135.20
HFT 0.00 0.00 0.00 0.00 -
Total 15892.63 40.99 | 1881047) -40.99|18.31_—|
The bank had not decided the category of the investment in G. Sec at the time of
acquisition including the investment in liquid funds as required in terms of para 16.1 of the
RBI Master Circular on Investments - UCBs issued vide DCBR.BPD. (PCB) MC. No.
4/16.20.000/2015-16 dated July 01, 2015. (Action)
4.21 Valuation! amortization’ trading/ shifting! income recognition/ audit, etc. of
investment portfolio:
(2) The bank had carried out valuation at the end of the year and there was a diminution
of %296.26 lakh, for which it held adequate provision under ‘Investment Depreciation
Reserve (IDR) as on the DPI.
(b) The bank held an Investment Fluctuation Reserve (IFR) of 744.38 lakh as on the DPI
against a requirement of %469.07 lakh at 5% of the AFS portfolio. (Action)
(c) The bank had shifted securities 12 times from HTM category to AFS category during
the PPR as against the stipulation of shifting once in a year in terms of para No.16.6.1 of
the RBI Master Circular on Investments — UCBs issued vide DCBR.BPD. (PCB) MC. No.
4/16.20;000/2015-16 dated July 01, 2015. It was not cléar whether the bank had valued
the securities at the time of shifting and provided depreciation for it. (Action)
{e) The bank's investment operations were subjected to a concurrent audit by a Chartered
Accountant firm on a quarterly basis. However, the concurrent audit report did not
comment whether the transactions were done at rates beneficial to the bank in non-
adherence of RBI guidelines in terms of para 15.1.3 of RBI Master Circular on
Investments — UCBs issued vide DCBR.BPD. (PCB) MC. No. 4/16.20.000/2015-16 dated
July 01, 2015. (Action)
(f) The bank had submitted the quarterly auditor's certificate on holding of securities in its
investment portfolio with a delay. (Action)
Page 4 of 14The City Co-operative Bank Lie, Mumbai
‘Statutory Inspection as on March 31, 2017
(g) It had carried out haif-yearly review of investment portfolio as envisaged in RBI
instructions. However, it had forwarded the review report for the half-year ended
September 30, 2016 to RBI with a delay. (Action)
(h) The bank had 11 brokers on its panel, but no transaction was carried out through them.
5. Loans, Fixed Assets and Other Assets
5.1.4 Credit Policy: The credit policy was last reviewed on July 4, 2017. It was found to
be deficient in contents as: The policy did not cover the aspect of obtaining CA certificate
on the status of statutory dues from the borrowers, prescribing benchmark credit
information scores from Credit Information Companies (CICs) for credit appraisal, the
Value of the security 1.e. fair market value, govt. valuation or distressed sale value, to be
Considered while sanctioning of loan and for provisioning for non-performing assets.
(Action)
5.1.2 Compliance with Statutory and Regulatory Norms:
'). The bank had generally adhered with the exposures norms vertaining to real estate
advances and unsecured loans during the PPR
il), The bank had started providing credit information of its borrowers to CIBIL with effect
from September 04, 2015. The bank had obtained membership of three CICs only
instead of four CICs prescribed in terms of para 2 of RBI circular DCBR. BPD.
(PCB/RCB). Cir. No.13 /16.74.000 /2014-15 dated January 29, 2015. Further, the
bank had uploaded the credit information of borrowers in CIBIL only.
Single Borrower/Group Borrower Exposure Limits (SBL/GBL): The limits were
effective from December 21 2016. However, it was observed that the outstanding
balance in 29 accounts were more than the SBL fixed by the bank. (List of Instances -
Lol)
'v).Lending to the Priority Sector-and the Weaker Sections: The bank had reportedly
achieved the targets set out for lending to Priority Sector and Weaker Sections.
However, these could not be verified as (a) the register for lending to Priority Sector
and Weaker Sections was not maintained activity and beneficiary wise. (b) The bank
did not have a robust and granular reporting system to generate information on
Priority Sector data. Thus, the bank had not adhered to para 6 (i) and para 6(v) of
Master Circular on Priority Sector Lending DBR. BPD. (PCB). MC. No. 11 /
09.09.01 / 2015-16 July 1, 2015, (Action all paras)
5.2 Credit Administration:
‘The loans and advances of the bank had decreased from %36258.00 lakhs as on the DLI
to %34327.77 lakhs as onthe DPI registering a deciine of €1930.23 lakhs (5,The City Co-operative Bank Lic, Mumbai
‘Statutory Inspection as on Merch 31, 2017
bank had mainly emphasized on the security 7 collateral given by the borrower. The bank —
was not analysing the cash flow of the business units of the borrower, thus not analysing
repayment capacity of the borrower. The bank's pre-sanction appraisal note was not
comprehensive and did not contain a SWOT analysis of the borrower or data on the
industry status so as to capture the risk parameters of the credit facility. (Action)
5.2.1 Credit Apprai
appraisal and post-sanction supervision:
The following deficiencies were observed in pre-sanction
i. The bank was not having a system of ascertaining the position regarding statutory
dues of the borrower while sanctioning the loan.
fi. Latest valuation report of primary/collateral securities was not on record in a few
cases. (Lol)
iii, | Frequent ad hoc limits were sanctioned in some cases. (Lol)
iv. The bank had obtained membership of CERSAI, however, it had not registered any
equitable mortgage with CERSAI as advised by RBI vide its circular UBD.BPD
(PCB).Cir.No.27/13.04.002/2012-13 dated December 12, 2012.
v. In some of the cash credit (CC) accounts only interest was credited and the entire
business transactions were not routed through the account (Lol).
vi. Many CC accounts were found frequently overdrawn which showed laxity in
monitoring CC / OD accounts as seen in NPAs considered by |O in annex v.
vil. | Some of the CC accounts were not renewed even after the limit had expired (Lol).
vili. | Underutilisation of the CC limits - It was found that the CC limits sanctioned was not
utilised by the borrowers showing poor credit appraisal by the bank. (Lol)
ix. End use of funds was not monitored by the bank. (Lol)
x. Non submission of stock statements: It was observed that some borrower were
either not submitting the stock / book debt statements to the bank or had submitted
with a delay. (Lol)
xi. In two cases, the bank had recalled the loans and issued notice under SARFAES!
Act, 2002 without classifying them as NPAs in its books (Lol).
xii. In previous inspection report it was reported that three CC accounts in the ‘bank's
Girgaum Branch, viz.
were sanctioned
against hypothecation of stock and debtors. The borrowers sold the hypothecated’
stock and also realised the respective dues from the sundry debtors but the
" proceeds were not deposited in their respective CC Accounts with bank, thus no
rirnary securities were available to cover their dues. The bank had therefore, filed a
Page 6 of 14The City Co-operative Bonk Lic, Mumbai
Statutory Inspection as on March'31, 2017
criminal complaint with Judicial Megistrate, Bhiwandi against the borrower and
guarantors. These accounts were considered under doubtful-2 category (secured) in
previous inspection report and in the current inspection report. Provisions were
suggested accordingly. .
xii. The bank had not obtained a declaration from the prospective current account
holders to the effect that he had not availed any credit facility with other commercial
bank or obtained a declaration giving particulars of credit facilities availed by them at
the time of opening of current accounts as required in terms of para 4.3 of
DCBR.BPD. (PCB)MC.No.14/13.05.000/2015-16 dated July 01, 2015 (Master
Circular ~ Management of Advances - UCBs). (Action all paras)
5. 3 Quality of Loan Portfolio:
8.3.1 Non-adherence to IRAC norms: The bank was yet to adopt identification of NPAs
‘on an ongoing basis as prescribed in para 2.1.6 of RBI Master Circular on Income
Recognition, Asset Classification, Provisioning and other related matters ~ UCBs issued
vide DCBR.BPD.(PCB)MC.No.12/09.14.000/2015-16 dated July 1, 2015. Further, NPA
identification and classification was undertaken through manual intervention rather than a
system based approach. The bank had also not established appropriate internal systems
to eliminate the tendency to delay or postpone the identification of NPAs, especially in
respect of high value accounts as prescribed in para 3.3.3(i) of the RBI Master Circular,
ibid. (Persisting Action)
5.3.2 Identification of additional NPAs: It was observed in previous inspection report
that the bank was not properly reversing the interest capitalised on the accounts after
being considering it as NPAs and in several accounts there were substantial amount of
interest capitalised in principal of NPAs. The bank had not reversed these interest as on
DPI. However, the reversal of interest was done in period between September 2017 and
November 2017 as reported by the bank. Hence, IO had suggested reversal of provision
for interest capitalised on NPAs.as on the DPI (details in Annex-V).
The current inspection had assessed divergence in asset classification in 89 loan
accounts (details In Annex-V). The sources of divergence included non-classification of
loan accounts as NPAs although CC accounts or term loan accounts were overdue for
more than 90 days and overdues were not recovered thereafter. It was also observed that,
the bank had not classified all loan accounts of the same borrower as NPAs on the same
date as provided in para 2.2.2(i) of the RBI Master Circular, ibid. (Action)
5.3.3 The profile of advances as on the DLI and the DPI was as under: in lakh)
Last Inspection _ Present Inspection ae }
i,The City Co-operative Bank Ltd, Mumbai
‘Statutory Inspection as on March'31, 2017
The bank's credit portfolio was assessed to have high level of NPAs. The bank did not
have adequate provision for loan losses, an additional assessed requirement of %5900.78
lakh was suggested.
5.3.4 The movement of NPAs during the last three years is as under: (in lakh)
~~ T NPAs at beginning Recoveries | Additions to NPAs | NPAs asat end |
Year —_ of the year \during the | during the year of the year
year I -
2695.47 262.38 | 800.39 | 3323.48 |
3323.48 | 321.36
16765.41 | 479.08"
“Ttincludes write-off of 8408.13 lakh.
‘The bank's recovery efforts in reduction of NPAs were overshadowed by substantial fresh
slippages during the last three years. Accordingly, the NPAs showed an increasing trend.
5.3.5 Write Off / OTS Cases: During the PPR, the bank had reportedly written off 91 with
outstanding of %408.13 (Principal amount) and & 1446.77 (Interest). It had sanctioned OTS
in 10 NPA accounts with outstanding of € 176.84 lakh with a sacrifice of interest %9.85 lakh
and recovered %166.99 lakh.
The bank had sent registered notices in respect of 25 borrowal accounts involving %1222.31
lakh and six borrowal accounts were under arbitration involving %541.74 lakh. 44 awards
amounting to 5311.73 lakh were under execution and 10 awards amounting to %1798.40
lakh were pending for execution.
5.4 Other assets: ‘No other item in “other assets” was considered as an intangible.
However, it was observed from the bank's liability towards Staff gratuity liability given by LIC
as per actuarial calculation was at 129.81 lakh against which the bank had paid 713.58
lakh only. Hence, 'IO had considered shortfall in provision for gratuity of € 116.22 lakh as
while assessing net-worth, CRAR and profit as on the DPI. (Action)
Page 6 of 14
Particulars DLI(31.3.2016) DPI (31.3.2017) =
‘As perbank | AsperlO | As per bank ‘As per lO
Standard Assets 32017.85| 9492.59 25453.59 16933.20 |
Sub-St. Assets 1690.64 | 6551.81 4662.62 1819.79
Doubiful Assets 2450.28 | 9594.50 3753.64 14895.53
(4) Loss Assets 99.23 619.10 457.92 457.92
Gross NPAs 4240.15 | 16765.41 8874.18 17173.24
[(eofGrossNPAs) | 11.60% | 46.24% 25.85% | __50.03%
Gross Advances 36258.00 | 6258.00 34327.7 | 34327.77
BDDR _ 1136.07| 1136.07 1873.79 |
[NetAdvances | 35121.93/ 35121 32453.98 | |
(10) Net NPAs 3104.08 | 15629.34 | 7000.39 |
(% of Net NPAs) 8.84% | 44.50% 21.57% |The City Co-operative Bank Ltd, Mumbai
‘Statutory Inspection as on March 31, 2017
6. Management:
6.1.1 The general administration and management of the bank was vested with an elected
Board of Directors (BoD). The Board constituted on November 2, 2016 was as per the
bank's bye-laws. .
6.1.2 The BoD held 14 meetings during the PPR. The BoD functioned in a cohesive
manner. The Directors generally adhered to the Dos and Don'ts prescribed by RBI.
Further, the bank had generally adhered to calendar of review as recommended by the
RBI.
6.1.3 Though the bank had circulated the list of directors and their relatives to the
branches, it did not contain the list of firms in which the directors and their relatives are
interested in as advised in terms of para 6.1 of the Master Circular DCBR. BPD
(PCB/RCB) Cir. No. 2 / 14.01.062 / 2015-16 dated July 1, 2016. (Action)
6.1.4 The bank had reviewed various policies viz., loan, investment, audit and KYC/AML
and risk management policies during the PPR.
6.1.5 The functioning of audit committee needed improvement as the committee could not
monitor the conduct of internal audit (staff) and compliance thereof. The performance of
loan & scrutiny committee and recovery committee needed Improvement in increasing the
credit portfolio and recovery of the NPAs. (Action)
6.1.6 Performance of the Executives: The Executives’ team of the bank at the Head
Office comprised of CEO, one Assistant General Manager, 15 Managers, 27 officers, 62
staff and 41 sub-staff. was initially appointed as additional CEO of
the bank w.e.f December 01, 2015 and thereafter promoted as GM & CEO from June 01,
2015. He had resigned from the bank w.ef July 07, 2017 on health grounds.
Subsequently, was appointed as GM & CEO, He had 37 years of
experience in the cooperative banking sector. .
7. Earnings Appraisal
‘The analysis of profitability for 2014-15 and 2018-16 is furnished in Annex-Il
7.2 Segment-wise Details of Income and Expenditure (& in lakh)
Particulars of Income and Expenditure 2015-16 __-2016-17| Variation % |
Income from Advances _— 4444.11 3311.02 -25.50
Income from Investments _ 1277.46 1623.
Operating Income
Non-Operating Income
Expenditure: Interest on Deposits / 4371.28
Borrowings | et
| Other Operating Expenses 843.29 | 808.50
Other Expenses 548.02 600.61The City Co-operative Bank Lid., Mumbai
‘Statutory Inspection as on March 31, 2017 —
‘The income from advances declined by 25.50% on account of decrease in advances and
substantial increase in NPAs during the PPR. The income from investments increased by
27.10% due to increase in investments in banks deposits and govt. securities during the
PPR. The other operating income increased by 103.88% due to increase in income from
trading in securities by 341.21%. The bank had however purchased new securities at
market rates for which it had to make provision under IDR due to net diminution as on the
OPI. The non-operating income decreased substantially due to booking of loss on sale of
assets during the PPR. The other operating expenses decreased due to decrease in staff
xpenses during the PPR. Consequently, the bank had declared net loss of 2003.01 lakh
during 2016-17 as against the profit of 714.70 lakh during 2015-16 mainly due to mal
provisions for depreciation in investments and loan loss on account of increase in NPAs
during the PPR. The bank made provisions for BDDR (1138.60 lakh) and IDR (270.99
lakh).
7.1 Assessed Net Profit and Profitability Ratios (in iakh)
Sr.No. Particulars satin 20151 ieee 2016-1704
1 Net Profit as reported by the bank 14.70 -2003.04
2 Net profit (As assessed by IO) 7 -3989.07 -9482.54
3 Net Interest Margin (%) reported 247 0.42
4 Net Interest Margin (%) assessed a Negative Negative
5 Cost Income Ratio (%) e724)
6 ___ Staff Cost to Total Income Ratio (%) 14.29
7 Other Overheads to Total Income Ratio (%) _ 11.30
8 Return on Average Total Assets | (ey
8
Return on Average Earming Assets (%5)"
‘acsdssed PBT
The reported NIM of the bank decreased from 2.47% to 0.42% during 2016-17 due to
decrease in interest income on account of increase in reported NPAs. Cost income ratio
increased from 74.43% as on 2015-16 to 172.48% during 2016-17 due to decrease in
interest income on advances on account of increase in NPAs during the PPR. The assessed
return on average total assets and average total eaming assets were negative as huge
divergence was observed in the loan portfolio of the bank. (Action)
7.2 The bank had not declared dividend during the PPR. The bank had not paid donation
during the PPR,
7.3 The bank had undertaken peripheral activities in the form of franking and insurance
business. The bank eared %8.57 lakh through its peripheral business during the PPR.
8. Liquidity
8.1 The bank had not defaulted in the maintenance of Cash Reserve Ratio (CRR) and
Statutory Liquidity Ratio (SLR) during the PPR. On a sample check, the compilation of
FE WNeund to be in order.
Page 10 of 14‘The City Co-operative Bank Ltd, Mumbai
‘Statutory Inspection 2s on March'31, 2017
8.2 The bank had formed an Asset Liability Management Committee (ALCO) headed by
the CEO, in which all department Heads were members. The ALCO met once in a quarter.
The committee had not paid attention to various kinds of risks such as interest rate risk,
market risk, operational risk faced by the bank, mismatches in maturity brackets,
preparation of liquidity statements and Interest Rate Sensitivity statement ,etc. (Action)
8.3 The bank had neither fixed any tolerance limit for mismatches in the maturity buckets
beyond 28 days in non-compliance of para § of RBI Circular UBD. PCB. Cir. No. 13
/2.05,001/2008-09 dated September 17, 2008 nor done any study on probability of roll-
over in maturing term deposits to meet any adverse liquidity position. (P-Action)
8.4 The statement of structural liquidity was not prepared as per the guidelines issued by
RBI .Further, the bank had not prepared interest rate sensitivity and dynamic liquidity
statements as required in terms of para 6 & 7. of RBI circular UBD.BPD.(PCB).Cir No. 13
112.08.001/2008-09 dated September 17, 2008, (Action)
9, Systems and Control
9.1 KYC, AML and CFT
9.1.1 Policy Adequacy and Adherence thereof
9.1.1.1 The bank had a KYC/AML policy, approved by its BoD, was last reviewed on
March 30, 2016.
9441.2 . Manager was the Principal Officer of the bank as on the DPI
The bank had communicated his name to FIU IND. However, it had not designated any
director as a “designated director’ as required in terms of para 6 of the Master Direction
DBR.AML.BC.No. 81 /14.01.001 / 2015-16 dated February 25, 2016 (Action)
9.1.1.3 The bank had furnished the requisite CTR, STR and CCR to FIU-IND, New Delhi in
time except for the months of April & May 2016 during the PPR. The bank had not filed
any NTR return during the PPR, (Action)
9.1.2 Compliance level
9.1.2.1 KYC Risk Profiling and Risk Categorization: The bank had initially done risk
categorisation of the customers on the basis of parameters such as constitution, nature of
transactions, volume of transactions, etc. Subsequently, review of risk categorization of its
customer accounts was undertaken based on the transactions once in a six months. The
bank had 210861 customer accounts as on the DPI and it had categorized 18598 (8.82%)
in high risk, 138128 (65.51%) in medium risk and 4135 (25.67%) in low risk categories.
9.1.2.2 KYC Updation: The bank had reported that 162499 accounts were
inactive/dormant pending for KYC updation as on the DPI. It had reported that system
automatically freezed the debits in such accounts.
y lg
eaThe City Co-operative Bank Lic, Mumbai
‘Statutory Inspection as on March'31, 2017 ——
9.1.2.3 The bank had not conducted an annual review of deposit accounts in which were
inoperative (j.e. no credit or debit other than crediting of periodic interest or debiting of
service charges) for more than one year as required in terms of RBI instructions contained
in Circular No. DCBR.BPD. (PCB). MC.No: 6 /13.04.000/2015-16 dated July 1, 2015.
(Action)
9.1.2.4 The bank had allotted Unique Customer Identification Code (UCIC) to its
customers. It had installed a “BI-UNICUS" software to identify multiple customer IDs based
on different parameters such as PAN No. Date of Birth, Mobile No, address, name ete.
However, UCIC were not allotted to 6157 customers as on the closure of inspection.
Further, 609 old FDR accounts closed for which no UCIC number was allotted. (Action)
9.1.2.5 The system of issue of demand drafts/ pay orders was generally in order.
9.2 Audit & Control
9.2.1 Control Mechanism
The bank had framed a policy for inspection and audit in the bank on March 03
2017.The bank's Audit Cell was entrusted with overseeing all audit functions in the bank
which reported to CEO instead of to the Audit Committee/Board as envisaged in pare 2.1
of the DCBR.CO.BPD.(PCB).MC.No. 3/12.05.001/2015-16 dated July 01, 2015. (Action)
9.2.2 Internal audit: All the branches were subjected to an internal audit once in a year.
The coverage was commensurate with the size of the business of the bank. However,
there was an inordinate delay in submission of the reports and compliance was not
received from eight out of ten branches. (Action)
9.2.3 Concurrent Audit: Eight branches of the bank were covered under concurrent audit
on a monthly basis and the remaining two branches along with Head Office of the bank
were covered under internal audit on a half-yearly basis. The coverage and content of
audit reports was satisfactory. However, there was a delay in submission of the reports by
the concurrent auditors and submission of compliance by the branches. The auditors had
Not commented on the compliance submitted by the branches or its sustenance in the
subsequent reports. : (Action)
9.2.4 Statutory Audit: Though the coverage was satisfactory, however; it had observed
divergence in NPAs, but had not qualified divergence and short provisioning in NPAs in its
Teport and as such there was underestimation of NPAs and consequent provisioning of
NPAs. (Action)
9.2.5 RBI Inspection: The bank was last inspected by RBI with reference to its financial
7 on March 31, 2016. The bank received the inspection report on August 08,
Ree
Page 12 of 14‘The Gity Co-operative Bank Ltd, Mumbai
‘Statutory Inspection as on March 31, 2017
2017 and fumished the compliance with a delay. However, some deficiencies were stil
persisting as listed in Annex VIII. (Action)
9.3 Information Technology Risk (IS audit): The bank had implemented the Core
Banking Solutions with effect from September 01, 2008. Subsequently it had migrated to
the Core Banking Solutions (CBS) provided by with effect from
October 01, 2017 but was yet to migrate from IPv4 (Internet Protocol Version) to IPvé.
The migration audit was yet to be conducted as on the closure of the inspection. The
information system audit was also not conducted during the PPR as advised in para 6 of
RBI circular DCBR.CO.BPD.(PCB).MC.No. 3/12.05.001/2015-16 dated July 1, 2015.
(Action)
9.4 Management Information System (MIS)
The bank had generally submitted statutory retums to RBI (including other off-site returns)
in time. The bank had a system of conducting branch visits by HO officials, but the
frequency Iperiodicity of the same was not fixed for such visits and compliance to the
observations of the visit reports was not recorded. There was no monitoring of submission
of various periodic statements by the branches. (Action)
9.5 House Keeping
The statutory auditor had reported that the balance in fixed deposit account and Interest
payable account in General Ledger had not tallied with the jotting of individual balance and
as such its impact on balance sheet and profit & loss account had not been ascertained by
them. . It was observed that some of the branches had exceeded their cash retention limits
frequently during the PPR (Action)
9.6 Frauds & Vigilance
‘There were three fraud cases aggregating 2458.12 lakh outstanding as on the DPI. The
bank had. reported belatedly to the RBI as stipulated -vide DCBS.CO. Cir. No.
001/12.17.001/2015-16 dated May 19, 2016. It had made full provision of 8456.10 lakh in
respect of two accounts. However, it had not made any provision in respect of a fraud
involving %2.02 lakh and as such a provision of & 2.02 lakh was suggested,
9.7 Complaints : 7
(a) Complaints: The bank reported that it had not received any. complaint during the PPR.
(b) The bank had not put up a comprehensive notice board in its branches as prescribed in
para 20.2 of RBI Master Circular on customer service - UCBs issued vide DCBR.CO.
BPD.(PCB).MC.No.15/12.05.001/2015-16 dated July 1, 2018. (Persisting Action)
{c) It had not prominently displayed the names of officials, who can be conte x‘The City Co-operative Bank Lid, Mumbai
Stentor Inspection as on March 31, 2017, y=
Jqraes (not Post Box No.) and e-mail address le at Hs branches for proper and timely
contact by the customers as prescribed in pare 30(i of the RBI Master Circular, ibid.
(Action)
40. Foreign Exchange Business
‘The bank was not authorised to conduct forex pusiness. Its category B licence had expired
in 2007. It had four NRE accounts which had outstanding balance of £0.49 lakh as on the
DPI, The bank was reportedly making efforts t0 contact those NRE customers / relations for
closing those accounts.
44, Off-Balance Sheet Business
444 Bank Guarantees: The bank had jgsued 11 inland financial bank guarantess
aggregating 242.63 lakh to its constituent borrowers through itself & PNB, with constituent’s
FD kept with itself / 100% margin money kept with the issuing bank during the PPR. There
were 16 financial guarantees aggregating 2219.26 lakh outstanding as.on the DPI. No
guarantee was invoked during the PPR. The bank guarantees were not issued in serially
numbered security forms as prescribed vide para 4.3 () of RBI circular DOBRBPD. (PCB)
MC No.8/09.27.000/2015-16 dated July 01, 2015. (Action)
44.2 Depositors’ Education and Awareness Fund: The bank had transferred an amount
of £44.10 lakh to RBI during the PPR and cumulative net outstanding under DEA fund
balance stood at £219.26 lakh as on the DPI
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