FOLLOWING A fresh directive from the Finance Ministry, public sector banks have started conducting forensic audits on all loan accounts above Rs 50 crore for any possible fraud, industry sources told The Indian Express.
After completion of the audits, the banks will prepare details of accounts that could potentially turn into non performing assets (NPAs), which will then be shared with the Government and investigative agencies for further action.
Accounts where any fraud is detected will be referred to the CBI after consultations with the chief vigilance officers of banks, sources said.
“We are undertaking this challenging task of auditing all accounts above Rs 50 crore. These are forensic audits being done in line with the Government’s initiative to detect frauds. For any account that is turning into NPA, we are seeking a borrower status report from the Central Economic Intelligence Bureau. This will help us identify whether the NPA is due to genuine business issues or some fraudulent activity,” a top official with a public sector bank told The Indian Express, on the condition of anonymity.
A forensic audit is used to examine a company or an individual’s financial information, which can be used as evidence in court. Such an audit helps in detection of fraud, wilful default, fund diversion and misreporting of accounts.
Loans over Rs 50 crore would essentially entail lending to medium-to-large corporates and would comprise a sizeable chunk of corporate loans. Bankers said the Government should have kept the threshold higher than Rs 50 crore as this has created a challenge of reviewing numerous accounts.
In the aftermath of the over Rs 12,000 crore letter of undertaking fraud at the Punjab National Bank, the Government directed the PSBs to examine all NPA accounts of over Rs 50 crore for possible fraud and wilful default. Banks have been asked to report the fraud cases to the CBI and also involve the Enforcement Directorate and the Directorate of Revenue Intelligence, if required.
A senior Finance Ministry official said these measures will help resurrect state-owned banks. “An across-the-board cleaning process is taking place in the (government) banks. Rs 250 crore and above accounts are being monitoring closely for any violation of loan conditions. Rs 50 crore and above accounts are being examined for wilful default and fraud. IBC (Insolvency and Bankruptcy Code) amendments are being moved. So the entire pain is front-loaded and the hope is that public sector banks will turn healthy in the near future,” the official said.
“There will be write backs, as the ongoing resolution of large loan accounts across various benches of the National Company Law Tribunal is expected to help banks to recover a significant portion. The ordinance on economic offenders should also work as a deterrent,” the official said.
Any write back from the written-off accounts would improve loan recoveries of the banks. On an average, almost 90 per cent of the NPAs written off by state-owned banks could not be recovered during the four years from 2014-15 to 2017-18, as per the Reserve Bank of India data.
Last Saturday, the government notified the Fugitive Economic Offenders Ordinance 2018 that provides for confiscating properties and assets of economic offenders like loan defaulters who flee the country. The provisions of the ordinance will apply to economic offenders who have left the country to avoid facing prosecution, or refuse to return to face prosecution, persons against whom an arrest warrant has been issued for a scheduled offence, as well as wilful bank loan defaulters with outstanding of over Rs 100 crore. It provides for confiscating assets even without conviction and paying off banks by selling the fugitive’s properties.
The Finance Ministry also mandated banks to collect passport details of borrowers taking loans of Rs 50 crore and more in order to prevent fraudsters from fleeing the country. For all existing loans of over Rs 50 crore, banks were asked to collect passport details of borrowers within 45 days.