Sudhir Ruparelia’s Crane Bank (CBL) advanced loans amounting to almost 50 percent of the financial institution’s core capital to his family businesses, leading to a liquidity crisis that compelled Bank of Uganda intervene, it emerged on Tuesday.
An updated audit report into the operations of Crane Bank shows that “as at October 20, 2016, loans amounting to Shs 63.6bn had been advanced to related companies. This is equivalent to 47.2 percent of Crane Bank’s core capital (Shs 134.5bn as outlined in CBL’S September 2016 returns).”
The auditors said this is against policy as “it exceeds the allowable limit of 20 percent of core capital.”
The report compiled by reputable audit firm, PwC Uganda at the instructions of Bank of Uganda, is expected to form part of the evidence to prosecute Sudhir Ruparelia on charges of fraud, insider lending and other crimes when he appears at the Commercial Court in Kampala this year.
Crane Bank, which auditors say was wholly owned by Sudhir and his family members, was taken over by BoU in 2016 on grounds of insolvency.
Efforts by BoU to compel Sudhir to capitalise his bank did not bear fruit as potential investors were dissuaded by the poor state of the bank’s book of accounts.
Sudhir would later ask Bank of Uganda, as a lender of last resort, for $115m to capitalise Crane Bank.
BoU Director of Commercial Banking Ben Ssekabira said the central bank was unable to provide the needed capital as Sudhir came up with securities which were not registered in Crane Bank’s name.
Nevertheless, Sudhir said in a response to the suit at the Commercial Court in Kampala that the economy was performing poorly hence client’s inability to pay their loans.
Sudhir argued this state of affairs led to a rise in non-performing loans that caused liquidity challenges.
However, a forensic audit carried out after the takeover of Crane Bank shows the financial institution was lending almost half of its core capital to businesses owned or related to Sudhir and his associates.
According to the confidential audit report, out of Crane Bank’s lending, “Shs 63.12bn (99 percent), had not been disclosed as insider lending.”
It’s thought had Sudhir not lent out large sums of money to his family businesses, Crane Bank would have retained enough capital to meet customers’ liquidity obligations.
ChimpReports has learned that through computer forensic discovery technology, auditors were able to retrieve a document titled, “Group COMPANIES AS ON 11.10.16 (enjoying credit facilities)” that listed all the four companies in the same workbook as other Ruparelia Group Companies.
This, auditors believe, shows the companies’ directors were “mere fronts” and that the companies may effectively also be part of the Ruparelia Group with the “beneficial owner being Dr Ruparelia.”
The audit report reads in part: “CBL appears to have concealed the ownership of some of its related companies. It did this by using proxies as directors in various companies.”
Of note is Mohamed Ali, one of the Ruparelia Group employees who is a director in Sunbury Investments and is a former director of Premier Commodities. He is not only a signatory to other Ruparelia group companies’ accounts in Crane Bank but also signed various instruments on behalf of the group. He also is an agent to many of Ruparelia Group companies and is seen to withdraw money from many of these accounts.
Auditors also cited Mohammed Yoosuf, a director of Infinity.
“In addition to their association through known proxies, a review of the transactions by the companies associated with these two individuals reveal that most of their transactions are with other known Ruparelia Group entities.”
In terms of loans at preferential rates, auditors noted examples such as with Maina Freight, a company related to Crane Bank through its former director Mohammed Ali, which had an outstanding loan of $4m at 7.88 percent interest rate.
Yet, other loans advanced around the same period attracted interest at between 11 percent and 13 percent.
Section 13 of the Financial Institutions Act (FIA), provides that a financial institution shall only grant, to any of its affiliates and associates, directors, persons with executive authority, substantial shareholders or to any of their related persons or their related interests, a loan or credit accommodation on the following conditions.
The terms must be non-preferential in all respects including creditworthiness; the loan aggregate must not exceed 20 percent of its core capital and the loans must at all times by collateral having a market value of at least 120 percent of the outstanding amount of the loan.
However, the auditors noted cases where the “loans to insiders were not fully secured. An example is Infinity where securities were released leaving a security coverage of 111.84 percent which is below the required threshold of at least 120 percent.”
It also was discovered that while loans to Infinity remained non-performing and were subsequently written off in December 2014, other insider companies of the Ruparelia family continued to access credit.
Auditors concluded there is evidence to “show that non-performing loans in related finance companies i.e. Crane Financial Services which is currently led by Sudhir’s son, Rajiv Ruparelia; and Prime Finance Company, would be transferred to Crane Bank. This would be achieved by the bank giving a loan to the borrower whose proceeds would be used to settle the outstanding balance in related financial companies.”
These revelations of mismanagement appear to counter claims that Crane Bank’s collapse was as a result of a bad economy or mistakes of Bank of Uganda.
Other undeclared loans discovered by auditors include Kings Autocentre (Shs 1.5bn), Premier Roses (Shs 3m) and Quick Colour (Shs 5bn).
“The total credit advances to identified insider companies stood at Shs 63.60bn (47 percent of core capital) as at October 20, 2016 which was against the FIA regulations (Insider Lending Limits), regulations, 2005 provision that a loan or credit accommodations to related party or group shall not exceed 20 percent of the bank’s core capital.”
Crane Bank’s core capital as per the 2016 third quarterly report on credit concentration and large exposures to BoU was Shs 134bn.
Additionally, while FIA encourages arm’s length relationships in dealings between financial institutions and their affiliates, auditors found out that the interest rate charged to the USD loan to Maina Freight was at a “significantly lower interest rate” at 7.88 percent compared to equivalent loans in the period that were charged between 11 percent and 13 percent.
Sudhir Buildings in Kampala
A review of some accounts revealed “heavy transactions” with Dippsi Concrete companies and known suppliers to Ruparelia Group companies such as Veksons and Seyani Brothers that have undertaken various construction projects for the Group.
As Crane Bank bled, Sudhir was constructing several multi-million dollar buildings in Kampala.
Some of the properties whose construction was completed recently include Speke Apartments in Kololo; Hardware Products Plaza which took 18 months to construct at a cost of $7m and Hardware City building in the city centre among others.
Auditors said analysis of loans worth Shs 56bn to Premier Commodities, Maina Freight, Sunbury Investments and Dippsi concrete “appear to have been issued to either clear outstanding principal balances on earlier issued loans or finance the businesses of other Ruparelia Group companies. Some of the Ruparelia Group companies that heavily transact with these accounts include Meera Investments Limited, Mpigi Trading, Redfox, Prime bank, Crane Management Services and Crane Forex Bureau.”
Basing on these findings, auditors recommended prosecution of Sudhir for conspiracy to defraud, causing loss to Crane Bank, embezzlement, insider lending, influence peddling, nepotism, money laundering and making and furnishing false statements to the regulator among others.