In the wake of mounting bad loans and bank frauds, the Central Vigilance Commission (CVC) has for the first time come out with an analysis of the top 100 banking frauds, including those in the jewellery and aviation sectors. The probity watchdog is learnt to have shared its findings, compiled on bank frauds as on March 2017, with the Reserve Bank of India (RBI), Enforcement Directorate (ED) and Central Bureau of Investigation (CBI) among others, officials said.
As many as 31 individuals accused of fraud and economic offences are wanted by ED and CBI. Among the prominent names are Vijay Mallya, who owes around Rs 9,000 crore to a group of banks; Nirav Modi, and his uncle Mehul Choksi, named in the Rs 12,636-crore fraud at Punjab National Bank; Jatin Mehta of Winsome Diamonds, who owes around Rs 7,000 crore and Sterling Biotech Ltd directors Chetan Jayantilal Sandesara and Nitin Jayantilal Sandesara for alleged bank fraud of Rs 5,000 crore.
CVC analysis focussed on the modus operandi, amount involved, type of lending (viz. consortium or individual), anomalies observed, loopholes that facilitated perpetration of the fraud concerned and the systemic improvements required to plug the gaps in the system and procedures. The frauds were classified and analysed for 13 sectors including gem and jewellery, manufacturing and industry, agro, media, aviation, service and project, discounting of cheques, trading, information technology, export business, fixed deposits, demand loan and letter of comfort.
The modus operandi of these top 100 loans has been thoroughly analysed and various loopholes or lapses have been identified. “Based on the findings, various industry specific suggestions for systemic improvement have been given in the final report, which have also been sent to the Department of Financial Services and RBI (Reserve Bank of India), in order to plug the loopholes observed by the Commission,” said Vigilance Commissioner TM Bhasin.
Bhasin said this analytical study was initiated by the commission as a preventive vigilance measure to minimise the occurrence of such type frauds in the future. “The RBI has also confirmed to the commission that inputs given by the CVC are very useful and shall be used for systemic improvements to mitigate the risks,” he said, sharing the reason behind initiating the analysis of the frauds.
The measures suggested include strengthening of standard operating procedures (SOPs) and the monitoring system, and also highlighting the role of controlling offices, so as to examine the aspect of quality of business. Giving details of the frauds in the gem and jewellery sector, the report cited different modus operandi by private companies, including inflating the valuation of diamonds with the malafide intention to avail higher credit facilities from the lenders.
It cited absence of effective mechanism in banks and certain other loopholes that led to frauds in this sector and suggested systemic changes. “The gem and jewellery sector credit facilities to these companies increased manifold within a short span of time in an effort by the banks to increase their credit dispensation. There should have been some segment related limits on such type of credit exposures,” the report suggested.
It added, “The companies deliberately inflated the valuation of diamonds with the malafide intention to avail higher credit facilities from the lenders and also to indicate the security coverage available with the lenders.
Export bills which remained unpaid on due date were purchased by the consortium Banks. Simultaneously, the disruption of the cash flow led to the devolvement of SBLCs and outstanding of cash credit remained unpaid. The group of the companies informed that as their receivables were not being realised in time due to financial difficulties of the foreign buyers; they could not meet the SBLC (Standby Letter of Credit) commitment on time.”
Among the suggestion were to ask jewellery sector units to furnish a monthly declaration to its lender banks declaring details of all transactions, financial agreement, contracts entered into by its subsidiaries with their business associates. The report further says to bring control of financers on movement of stocks. “Confidential Report (CR) on all foreign buyers should have been obtained and analysed,” it adds.