RBI asks banks to tighten noose around unscrupulous borrowers

“In certain cases,the borrowers used the accounts maintained at other financing banks to siphon off funds fraudulently diverted from the bank on which the fraud was perpetrated. This could be possible due to lack of a formal arrangement for exchange of information among various lending banks,” RBI notes.

While the affected bank was engaged in recovery/ criminal action at its end,the borrowers went about perpetrating fraud in their accounts with the other financing banks. In some of the fraud cases reported by banks,it was revealed at a later stage that the securities offered by the borrowers to different banks were the same,notes the apex bank advisory.

Earlier,the RBI in its circular of September 19,2008 had advised banks to strengthen the sharing of information about the status of borrowers enjoying credit facilities under multiple banking arrangement.

It had prescribed a system of obtaining declaration from borrowers,exchange of information among banks on regular intervals and obtaining regular certification by a professional regarding compliance of various statutory prescriptions.

As part of the ongoing compliance,the banks that have financed a borrower under multiple banking arrangement are also asked to exchange information on multilateral basis regarding incidents of fraud,legal actions taken and covert activities/operations of the borrower after the fraud among other things.

It says the banks must consolidate data to ascertain the quantum of frauds,loss caused by the frauds and perceived ramifications among others.

“As such,all the banks,which have financed a borrower under ‘multiple banking’ arrangement,should take co-ordinated legal action and follow up for recovery,exchange of details on modus operandi etc,” it said. Preferably,the co-ordination efforts should be driven by the bank which detects the fraud first or by the bank which has the maximum exposure,depending on circumstances,says the RBI note.

M K Jain,general manager of Dena Bank,said that individuals were not considered for multiple banking arrangement,which only had big corporate clients for this type. “Though we at Dena Bank are lucky so far to not having come across big frauds,we have to be careful about defaulters before taking credit decisions,” he said.