Performance Audit on Functioning of State Bank of Sikkim for the year ended March 2023

An audit of the State Bank of Sikkim — constituted in 1968 under a proclamation of the then Chogyal, owned by the state government and acting as its banker — covering 2017-18 to 2022-23. The bank is not licensed under the Banking Regulation Act, has no lender of last resort and no RBI supervision, and more than half its advances have gone bad.

State: Sikkim
Audit period: 1 Apr 2017 — 31 Mar 2023
Presented: 12 Dec 2025

Findings

Gross non-performing assets stood at ₹1,682.04 crore — 52.23 per cent of total advances — as on 31 March 2023.
“A Performance Audit (PA) on the functioning of SBS was taken up in view of the existing high level of Gross Non-Performing Assets (GNPA) aggregating ₹1,682.04 crore (52.23 per cent) of its total advance as on 31 March 2023.”Executive Summary
The bank is not licensed under the Banking Regulation Act, 1949, so it has no lender of last resort; in the event of a run on the bank there is nothing to bail it out of insolvency.
“Since the SBS is not a bank licensed under the Banking Regulation (BR) Act, 1949 it does not have a lender of last resort... considering the alarming rate of non-performing assets (currently 52.23 per cent), in the untoward event of a "Bank Run" occurring, there is no lender of the last resort to bail out the SBS from insolvency.”Executive Summary
The bank had framed none of its critical policies — compliance, anti-fraud, whistle-blower, credit, investment, IT, legal audit, rotation and mandatory leave — which the audit links to lending without proper appraisal and to the irregularities and fraud found.
“Audit noticed that SBS had not framed critical policies viz., Compliance Policy, Anti-Fraud policy, Whistle Blower policy, Credit policy, Investment policy, IT Policy, Legal Audit policy, Rotation and mandatory leave policy... Thus lack of these policies led to credit lending without proper credit appraisal, regular follow-ups and credit/ legal audit, etc., resulting in accumulation of NPAs and series of irregularities and fraudulent activities prevalent in the Bank.”Executive Summary
Of 34 term loans worth ₹913.37 crore given to six state departments, three PSUs and one autonomous body between March 2013 and March 2023, 25 accounts turned non-performing with ₹555.93 crore outstanding.
“The SBS had sanctioned 34 term loans amounting to ₹ 913.37 crore to six departments, three PSUs and one Autonomous Body between March 2013 to March 2023... due to non-repayment of loan instalments 25 out of 34 accounts have turned into NPA with total outstanding balance of ₹ 555.93 crore as on 31 March 2023.”Executive Summary
The bank over-claimed ₹32.81 crore of agency commission from the state government by applying a lump-sum rate of 0.118 per cent instead of the per-transaction rates the RBI notified.
“the SBS, stuck to the lumpsum rate of 0.118 per cent without giving cognisance to the rates notified by the RBI from time to time as was stipulated in the agreement... This resulted in excess claim of agency commission amounting to ₹ 32.81 crore from Government of Sikkim.”Executive Summary

Findings

Gross non-performing assets stood at ₹1,682.04 crore — 52.23 per cent of total advances — as on 31 March 2023.

“A Performance Audit (PA) on the functioning of SBS was taken up in view of the existing high level of Gross Non-Performing Assets (GNPA) aggregating ₹1,682.04 crore (52.23 per cent) of its total advance as on 31 March 2023.”Executive Summary

The bank is not licensed under the Banking Regulation Act, 1949, so it has no lender of last resort; in the event of a run on the bank there is nothing to bail it out of insolvency.

“Since the SBS is not a bank licensed under the Banking Regulation (BR) Act, 1949 it does not have a lender of last resort... considering the alarming rate of non-performing assets (currently 52.23 per cent), in the untoward event of a "Bank Run" occurring, there is no lender of the last resort to bail out the SBS from insolvency.”Executive Summary

The bank had framed none of its critical policies — compliance, anti-fraud, whistle-blower, credit, investment, IT, legal audit, rotation and mandatory leave — which the audit links to lending without proper appraisal and to the irregularities and fraud found.

“Audit noticed that SBS had not framed critical policies viz., Compliance Policy, Anti-Fraud policy, Whistle Blower policy, Credit policy, Investment policy, IT Policy, Legal Audit policy, Rotation and mandatory leave policy... Thus lack of these policies led to credit lending without proper credit appraisal, regular follow-ups and credit/ legal audit, etc., resulting in accumulation of NPAs and series of irregularities and fraudulent activities prevalent in the Bank.”Executive Summary

Of 34 term loans worth ₹913.37 crore given to six state departments, three PSUs and one autonomous body between March 2013 and March 2023, 25 accounts turned non-performing with ₹555.93 crore outstanding.

“The SBS had sanctioned 34 term loans amounting to ₹ 913.37 crore to six departments, three PSUs and one Autonomous Body between March 2013 to March 2023... due to non-repayment of loan instalments 25 out of 34 accounts have turned into NPA with total outstanding balance of ₹ 555.93 crore as on 31 March 2023.”Executive Summary

The bank over-claimed ₹32.81 crore of agency commission from the state government by applying a lump-sum rate of 0.118 per cent instead of the per-transaction rates the RBI notified.

“the SBS, stuck to the lumpsum rate of 0.118 per cent without giving cognisance to the rates notified by the RBI from time to time as was stipulated in the agreement... This resulted in excess claim of agency commission amounting to ₹ 32.81 crore from Government of Sikkim.”Executive Summary