Big loan defaulters to face Reserve Bank of India's audit-Economic Times
MUMBAI: The Reserve Bank of India (RBI) has taken upon itself the task of investigating bank frauds after a series of inquiries by banks themselves in high-profile cases such as those involving Deccan Chronicle and Kingfisher Airlinesyielded very little.
The Board of Financial Supervision (BFS), chaired by RBI governor Raghuram Rajan, has, in fact, cleared a proposal that the central bank will conduct an independent forensic audit of corporates declared fraudulent by banks. Independent audits, however, will be restricted to corporates that have borrowed more than Rs 1,000 crore.
The central bank will first try to get to the bottom of what went wrong with Deccan Chronicle. What's interesting is that the mandate has been given to PwC, which was banned by the RBI for nearly a decade for possible audit lapses of Global Trust Bank. The bank was later forcefully merged with the Oriental Bank of Commerce for alleged mismanagement.
In response to an email from ET, a PwC spokesperson "declined to comment", while the RBI did not respond to ET's email. However, senior bank officials with exposure to Deccan Chronicle told ET they have received a letter from the RBI urging them to cooperate with PwC.
The Hyderabad-based Deccan Chronicle borrowed Rs 4,000 crore from a consortium of 18 lenders, who allege the company misused the banking system by borrowing from one set of lenders without keeping others in the loop. Bank officials say the central bank's move reflects poorly on the banks, and reaffirms the fact that banks and some promoters have developed cozy relationship, that has led to thousands of crores of bad loans.
A consortium of lenders led by Canara Bank appointed Ernst & Young to conduct a forensic audit on Deccan Chronicle, but it yielded very little. "The report itself was inconclusive and lenders did not to act upon it," said a bank chief who did not want to be named.
The steep rise in bad loans in the past few years has forced the central bank to come up with strong measures to ensure banks do not sweep bad loans under the carpet. The gross non performing assets — bad loans prior to making provisions — for the calendar year 2013 stood at Rs 24,3210 crore, up 35% on a y-o-y basis.
Besides, the number of cases referred to the corporate debt restructuring (CDR) cell has also risen sharply in recent months.
Independent forensic audit is one of the many steps taken by the RBI to check the rise in stressed assets in the banking system. For instance, RBI decided to incentivise lenders who take quick action to resolve such cases and penalise those who sit on them. Bankers say the findings from forensic audit will enable RBI to devise policies that will help it keep a close watch on the creditor-borrower relationship, and quickly step in when there's a misuse in the system.
Give benefit of differential rate to MSE sector: RBI to banks
MUMBAI: The Reserve Bank today asked banks to give the benefit of differential rate of interest to micro and small enterprises (MSE) on the basis of credit guarantee cover.
"We advise that while pricing their loans to MSE borrowers, banks should take into account the incentives available to them in the form of the credit guarantee cover of the Credit Guarantee Fund Trust for Micro and small enterprises(CGTMSE)," RBI said in a notification today.
The cover provided by CGTMSE help banks to protect risk arising out of default as the loans are insured by the guarantee fund trust.
However, banks should note that such differential rate of interest should not be below the base rate of the bank, it added.
In its first Bi-monthly Monetary Policy Statement for 2014-15, RBI had proposed that banks should adopt these measures in order to give a fillip to the flow of credit to micro and small enterprises (MSEs) borrowers.
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