POOR CRISIL ESG RATING AND MASSIVE FRAUD IN BANKS – CORRECTIVE STEPS NEEDED IN THE ESG AUDIT RATING BY SOCIAL AUDITOR - WITH REFERENCE TO THE UCO BANK

 

                                                                  * BIRENDRA K JHA 

(Warning : "The Experimental Science Rating Method in Social Audit” is a tool developed by this Social Auditor (the author). This is an intellectual property right protected by this Social Auditor not to be used in any way in any audit including the ESG Audit or the Social Impact Assessment Audit, without the written permission of this Social Auditor. For research paper publication  and academic works credit shall be given to this Social Auditor, with clear name and Membership Number  of the Institute of Social Auditors of India)

The CRISIL's ESG Rating of banking sector in 2022 is poor, bad and doubtful. This touches the milestone, that in CRISIL, the people have no skill and quality for sensing the social audit related data correctly which touches the cornerstone of the ESG Rating. Almost similar position may be of the different other rating agencies on the ESG also, which badly rely on the public domain documents supplied mostly by the companies. 

In well documented studies, done in the specific cases of the Axis Bank and Nayara Energy Limited, it has been demonstrated that the CRISIL rating of the ESG rating in 2022 is full of errors and very poor. This requires CRISIL to develop more sound process for auditing the ESG parameters. Till now the skill and quality of such rating agencies are extremely poor and they are all toddlers and learning to walk in the ESG rating business. 

In this paper, this is again demonstrated that how the CRISIL Method of ESG Rating has collapsed again in the banking industries. The "Adequate" rating of the ESG rating in 2022 in UCO Bank rating is poor and doubtful.  This is not trust worthy. In this case one bank UCO Bank specific part "Governance" and Social Pillars are audited as sample test to lift the veil on the bank's practices.

GOVERNANCE PILLAR: 

Fraud has been reported in the UCO Bank. The past precedent history of this bank in controlling fraud is not sound. This industry in the financial year 2023, exactly recorded 13530 cases of frauds as against 9103 in 2022. In between 2022 to 2023, some 33% rate of fraud cases has been increased. This shows the "Governance" part in the industry is collapsed. 

Some fraud reported cases are there which are not included in the Annual Report and Business Responsibility Disclosure with full facts and requirement as needed in the mandatory disclosure in between 2019 to 2023  

1. The Reserve Bank of India (RBI) has imposed, by an order dated January 29, 2019, in the same year a monetary penalty of ₹ 20 million (Rupees Twenty Million) on UCO Bank (the bank) for non-compliance with law on frauds. This is not reported clearly. 

2. The Reserve Bank of India (RBI) has, by an order dated July 31, 2019, imposed monetary penalty on UCO Bank for non-compliance with the important compliance and provisions of “Reserve Bank of India (Frauds classification and reporting by commercial banks and select FIs) directions 2016”. The RBI has imposed a penalty of Rs One Crore on the UCO Bank, for non-compliance of fraud reporting law of the land. This compliance is necessary to take appropriate remedial measures. But the UCO bank arbitrarily non reported the matter to the monitoring agency. The penalties have been imposed in exercise of powers vested in RBI under the provisions of Section 47A(1)(c) read with Sections 46(4)(i) and 51(1) of the Banking Regulation Act, 1949, taking into account the failure of the banks to adhere to the aforesaid directions issued by RBI. This is also not reported.

3. RBI again has slapped heavy fine on UCO Bank for violating govt bond holding norms in 2020 for bouncing unethically the SGL forms. This is also not reported.

4. The Managing Director of Tirupati Infraprojects Pvt. Ltd, has been arrested for allegedly defrauding a consortium of banks of Rs 289.15 crore, in which UCO Bank is also involved. The Central Bureau of Investigation (CBI) conducted searches at offender’s premises earlier, where several incriminating documents were recovered. The accused was remanded to police custody. This fraud is related to grant Term Loan of Rs. 300 Crore to the borrower company for construction of a Hotel at Paschim Vihar at New Delhi along with commercial spaces. This is not reported in between 2019 to 2023

All the above four cases are not reported intentionally between 2019 to 2023. This is suppression of facts   to hide "material information" where clearly law of the land has been violated. While performing the ESG Audit Rating of the UCO Bank, why material violations report not accounted and considered? This is not only lack of audit skill but shows extreme poor quality of casual reporting in the ESG audit rating by the CRISIL.

Ignoring the standard parameters which is required in the Social Audit, particularly the UCO Bank, when past credential was poor as a precautionary measure no third-party social audit has been validated and public domain document, mostly supplied by the UCO Bank was relied badly and heavily which provided the wrong information to the rating agency.

This is the poor fraudulent culture and practice of the UCO Bank, which busted at once in 2023. At UCO Bank, multiple instances of frauds on a daily basis are coming to light. This has alerted the finance ministry and the parliamentary panel on ICT, to look into the issue. An urgent meeting with the Reserve Bank of India (RBI), Trai, telecom department and the National Payments Corporation of India (NPCI), among others, have been conducted to stop fraud and corruption. 

While mechanisms are in place and banks have responsibility to protect account holders’ money. The regulator and the government have explored options to ensure that money even if transferred from one account can be stopped from flowing out. This mechanism is not strong in UCO bank. This loop hole is intentional or technical can't be confirmed this time. But large cases of frauds involving senior officers’ hints that governance culture has collapsed in the bank.  Recently, the bank has informed the stock exchanges that it recovered Rs 649 crore, which is 79% of the amount wrongly credited to account holders in a single month. The bank has blocked the recipients’ accounts and has taken the IMPC system offline to prevent further drain. This is not massive technical glitch alone in UCO Bank's IMPS payment system.  This needs compulsory sole searching, where erroneously Rs 820 crore has been credited. The amount was so big that it forced the UCO Bank to report matter to the law enforcement agencies.

SOCIAL PILLAR:

Total number of employees in Bank in the financial year 2022-23 is reported as 21698. I shall not touch down the entire part of the social pillar. I shall only audit one part of the UCO Bank as sample test to understand the UCO Bank situation in resolving satisfactorily the complains under the POSHA Law. In one sample case, reported at Mumbai. This case is reported in between 01.06.2019 to 28.02.2020 at Mumbai. The Business Responsibility Report in 2021 -2022 has reported NIL Cases on POSHA, whereas this was pending till 2023. This is major violation of the fair disclosure of the Business Responsibility Report.

COMBINED RATING: 

Hence based on the two sample tests, one from the Governance Pillar and the other from the Social Pillar, where two major laws of the land have been openly violated by the UCO Bank, allow any reasonable Social Auditor to put Negative Rating of the Governance and Social Pillar. I presume here that the Environment pillar is "Positive". Hence the combined rating, adopting the “Experimental Science Rating Method” is following:

E⁺ S^- G^-

The UCO Bank shall conduct self-introspection and improve the ESG Part seriously.  If Social and Governance parts are poor, it can’t be said that the Environment Part is strong. Though this element pillar has been presumed here in this study as positive. The UCO Bank shall improve honestly with ground work which is almost missing. After improvement shall conduct again independent Third-Party Social Audit. That report shall be published in the UCO Bank web site, so that CRISIL like rating agencies can conduct correct rating in the ESG.   

(  Birendra K Jha,  is a Pan India Practitioner on the "Social Impact Assessment Audit" & "ESG Audit".  He is a Qualified & Certified  Social Auditor from the ISAI (ICAI). He is Director of HR Lab, a Social  Audit firm. Apart from Social Audit, he provides consultation on the CSR Audit, ESG Audit, CSR funds; CSR Programs; CSR Need Assessment; CSR Program Measurement; Entry & Registration- Social Stock Exchange & provides Capacity Development Training to industries on the CSR & ESG. He is based at Delhi-NCR. He overlooked at senior position as General Manager and Deputy General Manager in the previous South Korean MNC Company in India handling human resource and social audit of ESG practices for more than a decade. He may be approached at: birendrajha03@yahoo.com )