Padma Bank under SEC scanner as fresh allegations of abuse, misuse of funds surface

Viewed as a blot in Bangladesh’s financial sector, Padma Bank is back into sharp focus after its current management traded charges with founding chairman Muhiuddin Khan Alamgir who points the finger at his successor Chowdhury Nafeez Sarafat.

After receiving the complaints, Bangladesh Securities and Exchange Commission says it will look at the charges ranging from abuse of office and embezzlement of money.

Dogged by loan scam and irregularities, the ownership and management of The Farmers Bank changed in 2018 before it was rechristened Padma Bank the following year apparently to restore its image.

MK Alamgir, a former home minister, now says incumbent Chairman Sarafat invested Tk 1 billion of the bank in a fund which is “in breach of rules”.

The Padma Bank was quick to hit back at Alamgir, saying it was him who “misused” the bank’s funds when he was chairman.

Both sides sought redress from the regulators.

Chowdhury Nafeez Sarafat

Mohammad Rezaul Karim, spokesman for BSEC, said they have received a written complaint from Alamgir.

“We will call the accused person to have his statement. Steps will be taken after scrutiny,” said the executive director of the market regulator.

THE ALLEGATIONS AGAINST SARAFAT

Alamgir raised the allegations against Sarafat in a letter dated Mar 7 to the Bangladesh Bank governor and asked the central bank to investigate them and take action. He copied the SEC, the finance minister and the financial institutions secretary.

The board of directors of the now-defunct Farmers Bank sanctioned an investment of Tk 1 billion in the Alternative Investment Fund of Bangladesh, the first of its kind in the country, on Nov 1, 2015 “in the absence” of Alamgir, then the chairman of the institution, according to the letter.

Alamgir says he only came to know about the investment after receiving a copy of a board memo recently.

The Farmers Bank

Padma Bank

“As is understood, Mr Nafeez Sarafat as Chairman/MD, the Alternative Investment of Bangladesh at the time received the investment amount in violation of the law that prohibited him to receive any investment from the Farmers Bank/the Padma Bank Ltd as he was the director of the bank,” he said in the letter.

Section 27 (2) of the Bank Company Act states that a bank cannot give loans to a firm of which a director of the bank is a partner or director.

The Act also states that such investment can be made only when the majority of the bank’s directors approve it. It prohibits the director, whose firm is receiving the fund, from giving his or her decision on such investment.

Alamgir said in the letter that Sarafat’s organisation has not repaid in terms of dividend or return on investment or payback of the loan capital against the Tk 1 billion investment of the bank.

“The amount thus appears to have been unlawfully sanctioned and invested or channelized constituting gross misuse or misappropriation of the bank’s capital or fund,” he said.

According to the SEC website, Strategic Equity Management Ltd is the manager of the Alternative Investment Fund of Bangladesh while Premier Bank is the fund’s trustee.

“In view of the aforesaid I would request you to investigate into the matter and identify the unlawful users of fund of the bank and arrange for return of the same on intimation to us shareholders,” Alamgir said in the letter.

Contacted for comment, Alamgir told bdnews24.com, “Such deeds should not go unpunished. People’s funds have been plundered here.”

Asked why he has raised the issue after so many years, Alamgir alleged some employees of the bank had hidden the matter from him and he has moved after coming to know about it recently.

Although the SEC confirmed receipt of the letter, Serajul Islam, spokesman for the central bank, said they did not receive the letter until Thursday.

The government approved the Farmers Bank, owned by the Awami League Presidium Member Alamgir, in 2013. He resigned as chairman following pressure over loan scam and irregularities in November 2017.

Sarafat took over as chairman of the bank in early 2018 before the bank was renamed at the beginning of 2019.

The chairman of RACE Asset Management Ltd also heads the board of trustees of the Canadian University of Bangladesh.

He could not be reached for comment about the allegations raised against him by Alamgir.

COUNTER-ALLEGATION BY PADMA BANK

The Padma Bank in a letter sent to the SEC, the same day Alamgir sent his to the central bank governor, accused the former home minister of “abuse of power” and blamed him for “irregularities”.

In the Padma Bank letter, its Managing Director Ehsan Khasru said Alamgir and Mahbubul Haque Chishti alias Babul Chishti, then chairman of the bank’s audit committee, “embezzled the bank’s money through loan fraud and misused funds by putting depositors’ money at risk.”

Muhiuddin Khan Alamgir

Alamgir also “interfered in the bank’s job directly to sanction loans”, Khasru alleged.

The bank sought the former chairman’s “assistance” to get back Tk 8.45 billion of defaulted loans from 19 customers, according to the letter.

More than Tk 83.33 million was transferred from the accounts of the bank’s customers “to City Medical and Hospital, owned by Alamgir”, the letter said.

Alamgir denies the allegation. He says he has no stakes in the medical college and hospital.

Khasru on Thursday said he would talk about the issue later on, but did not take  bdnews24.com’s calls anymore.

Md Mizanur Rahman, a commissioner at the SEC, said they have received the Padma Bank MD’s letter as well.