A lender at Bendigo Bank subsidiary Rural Bank conspired with a customer to present a $1 million bank loan as a gift from his aunt, the financial services royal commission has heard.

During the first day of sittings in Darwin, the commission heard that the Queensland cattle grazier, a customer since 2003, originally approached the bank for a $2.7 million loan but was knocked back.

After that he cut his request back to $1.7 million and claimed he would get $1 million from his aunt and the bank gave him the money.

The $1 million sum was in fact a margin loan obtained from Macquarie Bank.

Rural Bank CEO Alexandra Gartmann admitted to the commission that  the manager had been manipulative and “acted dishonestly to the bank and customer involved”.

The manager, she said, was “no longer with the business”.

Alexandra Gartmann took the battle up to Rowena Orr QC.

The commission also heard that the bank was making loans to Queensland farmers that their operational businesses could not justify, and managers were relying on the farmers’ security to support the loans.

This, however, was a risky proposition as the cattle herd provided as security for one grazier was worth $1.7 million in mid-2009 but had fallen to almost half that a few months later.

Another farmer who had been in financial trouble in February 2009 had his overdraft increased by $100,000 to $850,000 a few months later by a Rural Bank manager.

“I believe his judgement was appalling,” Ms Gartmann observed.

In yet another case a farmer who was judged by the bank to be heading for administration or liquidation had his overdraft increased from $200,000 to $350,000. This pushed his total exposure to $3.01 million.

The records of five different managers showed that they had failed to report to the bank on loan servicing problems among clients and failed to enforce loan conditions.

So problematic was some of its internal reporting that the bank only discovered that it had 62 non-performing loans two weeks ago in preparation for the commission.

Ms Gartmann proved something of a warrior, going into a prolonged battle with counsel assisting Rowena Orr QC and even taking on Commissioner Kenneth Hayne in one exchange.

The disagreements began when Ms Gartmann refuted submissions to the commission made by former Bendigo Bank CEO Mike Hirst.

Mr Hirst, who was replaced today by Marnie Baker after resigning earlier in the year, made some sweeping criticisms of Rural Bank in his submission to the commission, claiming “Loan performance was exacerbated by inadequate loan management”.

Valuations were not accurate or independent and there was a failure by managers “to physically visit and inspect livestock and properties”, Mr Hirst said.

However Ms Gartmann took a different view, saying Mr Hirst was “being quite harsh in his assessment”.