Audit flags suspected fraud, poor oversight at State Bank of Sikkim

Serious lapses in internal control have come to light at the State Bank of Sikkim (SBS), with a performance audit by the Comptroller and Auditor General (CAG) detecting suspected fraudulent deposits linked to loan disbursements between 2017 and 2023.

The audit has revealed that nearly Rs 3.65 crore from 166 borrower accounts was transferred into the personal bank accounts of SBS employees soon after loan approvals. In 64 cases, deposits amounting to Rs 1.29 crore were made on the very day the loans were disbursed, indicating a possible quid-pro-quo arrangement tied to loan facilitation.

Calling the findings a “high probability of illicit transactions”, the report says the pattern points to a “loan sanction–disbursement–employee benefit linkage”, suggesting abuse of authority and absence of supervisory vigilance within the bank.

The auditor has also highlighted broader institutional weaknesses across the bank’s operations. The report notes that SBS had no fraud risk policy, whistleblower mechanism, internal audit wing, or protocols such as mandatory leave and job rotation — practices considered vital to deter insider fraud.

Deficiencies in credit appraisal and loan monitoring further left the bank exposed to fraud risks. The CAG observed that poor due diligence and weak recovery discipline had pushed gross non-performing assets to 52.23 per cent of total advances — Rs 1,682.04 crore out of Rs 3,220.67 crore as on March 31, 2023.

The audit also flagged under-provisioning of bad loans amounting to Rs 225.28 crore during the same period. It noted that had the bank made the minimum NPA provisions of 15 per cent under its own norms, SBS would have reported losses in each of the last five financial years.

Adding to depositor concerns, the report underlined that the State Bank of Sikkim continues to function outside the Reserve Bank of India’s regulatory framework. Established under the State Bank of Sikkim Proclamation, 1968, the institution remains beyond RBI supervision, leaving depositors without access to deposit insurance or a lender of last resort.