BENGALURU: A statutory audit report for 2024-25 has revealed large-scale financial irregularities in a loan sanctioned by the Karnataka State Cooperative Apex Bank to Amethyst Hospitality Private Limited, one of the group companies of the prestigious Davanam Jewellers. The bank had approved a loan of Rs 82.36 crore after converting the company’s working capital limit into a term loan.
According to the audit report, accessed by media, the sanctioned amount was transferred to accounts that the same borrower maintained in other banks. This transfer of funds has raised serious questions about the transaction’s intent and legitimacy.
The loan was approved with the stated objective of taking over the company’s existing working capital facilities with the State Bank of India and the Union Bank of India under a consortium arrangement. An amount of Rs 80 crore was sanctioned as a term loan for this purpose.
On the date of takeover, the outstanding balance in the account was Rs 69.05 crore. However, instead of restricting the loan to that amount, the Apex Bank sanctioned Rs 80 crore—nearly Rs 10.95 crore more than required. Auditors have pointed out that this excess sanction was completely unjustified and against banking norms.
One of the major violations highlighted in the report relates to promoter contribution. As per loan sanction conditions, promoters were required to bring in at least 5 per cent of the loan amount from their own funds. However, the promoters did not make any such contribution. Instead, the bank internally adjusted 5 per cent from the sanctioned loan amount itself and treated it as a promoter contribution. This was in clear violation of prescribed rules.
The auditors have also found that the entire transaction violated the Reserve Bank of India’s Master Directions on transfer of loan limits issued in 2021. The working capital outstanding of Rs 69.05 crore was converted into a term loan of Rs 80 crore, and a fresh repayment schedule was framed. This restructuring was carried out without proper approvals and in violation of RBI guidelines.
Further irregularities were detected in the repayment terms. According to the bank’s own policy, project loans must be repaid within seven years. However, in this case, the approved repayment schedule was 84 monthly instalments after a six-month moratorium—effectively extending the tenure to seven and a half years. This directly violated internal policy norms.
Another major breach involved margin requirements. As per bank policy, project loans require a minimum margin of 25 per cent from the borrower. But in this case, the margin was fixed at only 5 per cent. The auditors noted that although the loan was shown as a “project loan,” it was not actually meant for any new project. Instead, it was merely used to take over existing working capital loans from other banks, which goes against RBI prudential norms.
The report also pointed out that the earlier lead bank in the consortium, State Bank of India, had already classified the account as stressed and non-performing. Despite this, Apex Bank failed to obtain detailed information on the borrower’s asset classification before sanctioning the fresh loan.
It was further observed that the bank did not have a properly approved exposure policy for the takeover of loans from other institutions. Directors who offered their properties as security for the loan had previously restructured their own borrowings. Their CIBIL reports reflected financial defaults, raising doubts about the creditworthiness of the guarantors and the borrower. The auditors termed this as a clear case of inadequate due diligence.
