In the last few months, many fraud incidences had taken place in banks. In order to reduce the fraud incidences in bank, the government has taken comprehensive steps as follows:
- A “Framework for timely detection, reporting, an investigation relating to large value bank frauds” to Public Sector Banks (PSBs) has been issued.
- This framework will help to government for systemic and comprehensive checking of legacy stock of their non-performing assets (NPAs), which includes:
- a) all NPA classified accounts having value exceeding Rs. 50 crore shall be examined by banks from the angle of possible fraud as there might be the chances of fraud
and a report placed before the bank’s Committee for Review of NPAs on the findings of this investigation;
b) after reporting fraud to RBI, an immediate action of examination be initiated for willful default
c)report on the borrower be sought from the Central Economic Intelligence Bureau in case an account turns NPA.
Fugitive Economic Offenders Act, 2018 has been approved to discourage economic offenders from evading the process of Indian law by remaining outside the jurisdiction of Indian courts.
As consequences of evasion, the act provides the following results:
- The attachment of property of a fugitive economic offender,
- Confiscation of such offender’s property and
- Disentitlement of the offender from defending any civil claim.
As per RBI’s instructions and their Board-approved policy, PSBs (Public Sector Banks) are advised to
- To obtain a certified copy of the passport of the promoters/directors and other authorized signatories of companies availing loan facilities of more than Rs. 50 crore and,
- Publish the photographs of willful defaulters
- Empowered to issue requests for issue of Look Out Circulars
- To strictly ensure the rotational transfer of officials/employees.
For enforcement of auditing standards and ensuring the quality of audits, Government has established the National Financial Reporting Authority as an independent regulator.
Over the last two financial years, inoperative company’s bank accounts of 3.38 lakh were frozen to bring transparency and accountability in the larger financial system
The impact of the above steps is reflected in RBI’s Financial Stability Report (FSR) of June 2019. As per FSR, systemic and comprehensive checking of legacy stock of NPAs of PSBs for frauds has helped unearth frauds perpetrated over a number of years. Details of the number of cases and amount involved in frauds of Rs. 1 lakh and above that occurred during the last three financial years (FYs), reported by Scheduled Commercial Banks (SCBs), as per inputs received from RBI, are as under:
|FY of occurrence||Number of cases||Amount involved (in Cr.)|
Upon receipt of loan applications with requisite details and documents in support of technical feasibility and economic viability of the proposal and creditworthiness and repayment capacity of the applicant, banks appraise and assess the same for a decision regarding sanction and disbursement.
While repayment capacity and applicant’s liabilities, including tax liabilities, are relevant for such appraisal and assessment, processing of applications for appraisal, assessment, sanction and disbursement is also dependent upon availability of requisite details and documents to enable the bank to arrive at a decision in its commercial judgement with due regard to the technical feasibility and economic viability of the proposal and the creditworthiness of the applicant, in accordance with the bank’s Board-approved loan policy.