Silver Bank Crisis: An Expensive Scandal with Potentially Serious Consequences

The Silver Bank, which acquired the BanyanTree Bank, is embroiled in a costly scandal that threatens to produce far-reaching repercussions. Rama Sithanen, the Governor of the Bank of Mauritius, has reignited concerns about Silver Bank, a financial institution tainted by questionable loans, massive public funds losses, and allegations of collusion during the previous administration.

An investigation is currently underway to determine accountability and examine the controversial practices associated with the bank.

During a press conference on Saturday, December 7, Sithanen brought the Silver Bank case back into the spotlight, highlighting its significance.

This issue has previously been raised by the former opposition party, now in power, and it is likely to lead to serious implications for former government officials.

The matter is being closely monitored by the Prime Minister’s Office, and a preliminary investigation is already in progress at the Bank of Mauritius.

The inquiry is aiming to uncover whether individuals from the previous administration received commissions, why the Bank of Mauritius and the Ministry of Finance were lenient towards Silver Bank, whether members or close associates of the former government benefited from substantial unpaid loans, and if any intermediaries acted as fronts for these transactions.

Placed under special administration on February 13 by the Bank of Mauritius—a decision that has not been adequately explained—Silver Bank, which took over from BanyanTree Bank, had previously enjoyed significant financial privileges.

Despite the bank’s dubious ownership, which managed to secure a banking license from the Bank of Mauritius, Silver Bank received monumental sums from public institutions, amounting to billions of rupees.

Sithanen expressed “little hope” of recovering the Rs 8.1 billion deposited in the bank.

Preliminary findings from the Bank of Mauritius’s investigation indicate that Prateek Gupta, the husband of principal shareholder Ginny Gupta—who owns 75% of Silver Bank through a company registered in the Cayman Islands—was the recipient of “the majority of loans granted by the bank,” according to Sithanen.

Prateek Gupta, an Indian national, is at the center of an extensive international scandal.

He is accused of defrauding Trafigura, a major global oil trading and shipping company, through a systematic fraud involving purported nickel shipments.

Trafigura alleges in a legal complaint that seven companies controlled by Gupta orchestrated this fraud, with losses estimated at $577 million, or approximately Rs 26.9 billion at current exchange rates.

In a short time, Silver Bank has disbursed Rs 8.3 billion in loans, all while operating under the radar of the Bank of Mauritius.

When the central bank attempted to curb this alarming trend, interventions were made to allow the bank to continue approving further loans.

Moreover, public funds were deposited into Silver Bank following a decision by a Ministry of Finance committee under the former government.

“In total, there remains Rs 522 million of Ministry of Finance funds in this bank,” Sithanen disclosed.

However, it does not stop there. Other public institutions, including the Curepipe municipality, still have tens of millions of rupees deposited in Silver Bank.

As the investigation progresses, the stakes are high, not just for those within Silver Bank but for the integrity of the country’s financial system as a whole.

The unfolding scenario has raised critical questions about governance, lending practices, and the safeguarding of public funds in Mauritius.

Slim Chances of Recovery with Confusion & Secrecy Persisting

According to the Governor of the Bank of Mauritius, the prospects for recovering funds tied up in Silver Bank are extremely slim, as the bank’s assets are reportedly worth next to nothing.

The ongoing situation has been further complicated by the former General Manager’s reluctance to share vital information.

The Silver Bank issue has been raised multiple times in Parliament, but obtaining clear information has proven nearly impossible.

On April 11, 2023, Reza Uteem, then an MMM member of Parliament and now the Minister of Labour, inquired about the ultimate beneficiaries of Silver Bank and whether they had any connections to Prateek Gupta.

In the absence of then Finance Minister Renganaden Padayachy, former MP Sunil Bholah was tasked with responding but opted to cite Section 26 of the Bank of Mauritius Act, which mandates confidentiality.

He argued that any details concerning the ultimate beneficiaries of Silver Bank are confidential and that the Bank of Mauritius is legally obligated to withhold information regarding its operations and clients.

On May 7, 2023, Arvin Boolell, then the leader of the PTR in Parliament and now the Minister of Agro-Industry, revisited the topic.

Padayachy responded by stating that he had been informed by the Bank of Mauritius that, under the same legal provision, the bank must maintain confidentiality about its affairs and those of any other bank, as well as their clients, which prevents them from disclosing the requested information.

Subsequently, the Speaker of the National Assembly, Sooroojdev Phokeer, explicitly prohibited Boolell from asking any further questions on the subject.

The Public Accounts Committee (PAC) has shed some light on the issue in its report dated May 19, 2023.

At that time, the PAC, chaired by Reza Uteem, highlighted that the Curepipe Municipal Council had invested Rs 91 million in BanyanTree Bank, which later became Silver Bank.

This investment matured in February 2020, prompting the council to write to BanyanTree Bank Ltd demanding repayment.

The bank’s administrator responded that the council’s accounts were frozen until further notice.

In 2021, after Silver Bank Ltd took over from BanyanTree Bank Ltd, it proposed a new investment plan.

However, the Curepipe Municipal Council initially rejected this offer, reaffirming its demand for a refund.

A decision-making meeting was scheduled for August 27, 2021, to address this situation.

Prior to that meeting, consultations were held with representatives from the Ministry of Finance, the Ministry of Regional Administrations, and both the Port-Louis and Curepipe municipal councils to discuss the matter.

The PAC noted that conflicting accounts were provided regarding the reasons for holding the meeting, what was actually discussed, and the recommendations made during it.

No official minutes were recorded. However, a representative from the Curepipe Municipal Council referred to her notes from the meetings, stating that the ministry representatives advised the local authorities against withdrawing their deposits from the bank, warning that such actions could lead to the bank’s liquidation and result in the potential loss of their funds.

As a result, during the August 27 meeting, following the ministries’ recommendations, the Curepipe Municipal Council voted to renew its deposit with Silver Bank, with only one councilor opposing the decision.

The PAC’s report suggested that certain officials from the Ministry of Regional Administrations and/or the Ministry of Finance attempted to influence representatives from the Port-Louis and Curepipe municipal councils to renew their deposits with Silver Bank Ltd, acting against the interest of local authorities and in favor of the bank.

The PAC recommended a thorough investigation to determine why ministry representatives pressured the municipal councils to renew their deposits with Silver Bank Ltd, which was in direct violation of a circular issued by the Ministry of Finance in May 2019 that instructed all local authorities to invest their surplus funds in government bonds.

This ongoing inquiry is raising critical questions about accountability and governance amidst the growing Silver Bank scandal.

Source: Defi Media