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PSBs scan older loans, may lead to more fraud discovery

Sources said banks are reviewing loan accounts, which have already been flagged for monitoring, and more large accounts are likely to be reported as fraud in the next couple of months.

Written by Sunny Verma , George Mathew | Mumbai, New Delhi | December 22, 2020 3:00:10 am
The total cases of frauds (involving Rs1 lakh and above) reported by banks and financial institutions shot up by 28 per cent by volume and 159 per cent by value during 2019-20 despite the Reserve Bank of India (RBI) tightening the supervision and vigilance.

Public sector banks (PSBs) are expected to report more fraud cases in loan accounts that have earlier been put under their early warning alert system. Sources said banks are reviewing loan accounts, which have already been flagged for monitoring, and more large accounts are likely to be reported as fraud in the next couple of months.

“Banks are going through their the accounts which were put on alert earlier. They will report fraud wherever such instances are found in case of large accounts, and make 100 per cent provision against them. These are being reviewed throughly to ensure that banks have adequately provisioned balance sheets and there are no surprises down the line,” a senior government official said.

The RBI did not comment on an email sent by The Indian Express. Some of the loans sanctioned during the 2010-2014 period have now turned out to be frauds with the lag between the occurrence of fraud and its detection stretching to over two years. The CBI on Saturday booked a former TDP Lok Sabha MP and his Hyderabad-based company for allegedly defrauding a consortium led by Canara Bank of around Rs 8,000 crore.

The total cases of frauds (involving Rs1 lakh and above) reported by banks and financial institutions shot up by 28 per cent by volume and 159 per cent by value during 2019-20 despite the Reserve Bank of India (RBI) tightening the supervision and vigilance. While there were 6,799 frauds involving Rs 71,543 crore as of March 2019, the number of frauds jumped to 8,707 involving a whopping Rs 185,644 crore, says the RBI’s Annual Report.

Bankers said the frauds reported this year are old ones. While these frauds happened five or six years back, they were reported only recently. “During the last two years, we had gone for forensic audit and investigation into these accounts. We found fund diversions and other issues. You have to differentiate between when the fraud happened and when it was recognised. In the last four or five years, the governance and system structures have evolved. We have done a root cause analysis and built systems so that lapses will not recur. We have taken all the precautions,” said Rajkiran Rai, MD and CEO of Union Bank of India.

The RBI said weak implementation of Early Warning Signals (EWS) by banks, non-detection of EWS during internal audits, non-cooperation of borrowers during forensic audits, inconclusive audit reports and lack of decision making in Joint Lenders’ meetings account are among reasons for delay in detection of frauds. The EWS mechanism is getting revamped alongside strengthening of the concurrent audit function, with timely and conclusive forensic audits of borrower accounts under scrutiny, the RBI said.

The central bank is now engaged in interlinking various databases and information systems to improve fraud monitoring and detection. The Central Fraud Registry (CFR) portal of SCBs, augmented with new features is at an advanced stage of development. Online reporting of frauds by NBFCs and the CFR portal of commercial banks, augmented with new features, are likely to be operational by January 2021, the RBI said.

According to the RBI, a major chunk of the frauds was reported on the advances front with 4,610 cases for Rs 182,051 crore, which works to around 98 per cent of the total value of frauds. Public sector banks topped the fraud table with 4,413 cases involving Rs 148,400 crore. Private banks reported 3,066 frauds involving Rs 34,211 crore. The RBI also indicated that the frauds registered during 2019-20 actually occurred in the previous years. The average lag between the date of occurrence of frauds and their detection by banks and FIs was 24 months during 2019-20. In large frauds — Rs 100 crore and above — the average lag was 63 months. The sanction of the credit facility in many of these accounts was much older, the RBI report said.

Frauds have been predominantly occurring in the loan portfolio (advances category), both in terms of number and value.

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