CVC identifies 100 bank frauds to understand and prescribe solutions, so that the systemic failure which led to a surge in NPAs can be addressed.
New Delhi: The Central Vigilance Commission has found serious lapses on the part of banks that have led to the piling up of non-performing assets or bad loans.
The lapses include failure to obtain detailed due diligence reports on borrowers before sanctioning loans, lack of adequate monitoring and failure to acquire letters of credit — a lender’s guarantee for payment — while sanctioning big-ticket loans.
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In February, the Rs 13,600 crore fraud committed by jeweller Nirav Modi on the country’s second largest lender, Punjab National Bank, shook the banking sector. Investigation revealed that a PNB branch in Mumbai had fraudulently issued letters of undertaking (LoUs) for a group of companies owned by Nirav Modi since March 2011.
The CVC then identified 100 bank frauds — reported since 31 March 2017 — to understand and prescribe solutions so that the systemic failure that led to a surge in NPAs could be addressed. Most of the frauds – small and big — that have come to light were due to serious lapses by bank staff.
“These cases have been taken up to understand what have been the lapses so that measures can be taken to ensure those are corrected,” vigilance commissioner T.M. Bhasin told The Print.
What companies have done
Businesses in the gems and jewellery segment have even deliberately inflated the valuation of diamonds with the view to avail larger amount of credit, the CVC’s report said.
In the manufacturing sector, companies submitted forged bills of entries, and even fake postal addresses, where huge amounts of foreign exchange have been remitted to various overseas accounts. Besides, companies also generated documents for exporting goods, which were later cancelled.
What banks got wrong
In a sweeping remark, the CVC noted that the much-hyped consortium lending, where many banks come together to give large loans to a single borrower — considered a safe option for big-ticket loan sizes — has not delivered, as banks have failed to check and monitor the transactions.
“The exchange of information was more a ceremonial formality rather than to sift the data. The lead bank did not share the areas of concern,” the CVC said.
“They did not take note of warning signals mentioned in the business rating reports. The lead bank did not exchange the information in meetings to alert other member banks at early stages.”
What needs to be done
The CVC said appropriate accountability needs to be fixed in the chain of command, including sanctioning authority, in the event of such frauds, instead of fixing the entire responsibility on lower functionaries.
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It has also prescribed that investigation must be undertaken to find out the trail of fund diversion to find where the money has gone, and whether any money has been remitted and parked aboard.
The findings have been shared with the Reserve Bank of India, the Enforcement Directorate and the Central Bureau of Investigation.
in todays environment – politically and possibly otherwise – the only comments one hears are (i) is this a UPA bank (NPAs belong to the UPA era) or (ii) is this a BJP bank (clearly whether the NPAs originated or were irreparably inflated during the BJP era). One never hears that this is a problem with the Indian Banking System and needs to be addressed. Until such time as this attitude is changed, the Indian Banking System is doomed. The Finance Minister it appears is more concerned making points in his blogs , or maybe he is being sidelined.
to the best of my knowledge my bank requires to know whether I am a politically sensitive person for some investments. Why cannot similar guidelines be applied to loans and the common rank and file be absolved of responsibility of guarding the bank against political and filthy rich cum political pressures. The blame can then be laid on a select group of people, and the same can be held accountable.
This is not rocket science , and there are many other similar simple measures