[ब्रजेश कुमार तिवारी], The relief for the Indian banking system from the problem of rising bad loans, i.e. bad loans still seems like a distant dream. In a case related to Dewan Housing Finance Limited (DHFL) on a similar misappropriation of loans, CBI has shown active in the past. CBI has also filed a case against key people related to him.
In fact, DHFL has given a setback of about 35 billion rupees to a consortium of banks led by Union Bank of India through bank fraud. The case is from 2010 to 2019. The audit firm KPMG caught her in a scam. In early February, the case of the fraudulent taking of a loan of about 23 billion rupees by ABG Shipyard came to the headlines.
The banking system of any country is the backbone of its economy. The effect of the loss on the banks falls on each person, because their money is mainly deposited in the banks. Doubtful assets (NPA) of banks have increased due to bad loans and scams. By the way, fraud on a large loan is not easy. However it happens.
In fact, large creditors collude with bank officials or even sometimes with third parties like lawyers or accountants (CA) and then a game of counterfeiting is done. Every day, one or another bank scam keeps popping up in the news. These scams add to the NPA threat to banks.
The Financial Stability Report released by the Reserve Bank of India in December 2021 estimated that banks ’net NPAs are expected to increase to 10% by September 2022. Higher NPAs also lead to net interest margins. lowest of the banks. At the same time, its operating cost is also continuously increasing. This cost increase is offset by these banks under the pretext of increasing a portion of the customer convenience fee. A survey by Deloitte revealed that 40 percent of NPAs are occurring because their recovery after repaying loans is not understood.
At the same time, it was said that the necessary formalities were not completed while loans were granted for 20% of the NPAs. According to a report, 70 rupees are drowning in loans of 100 rupees given to industries. In comparison, only four rupees of the loan given to the common man are collapsing and this is also recovered later.
This means that the common man is giving advantage to the banking system, but some big creditors are determined to make this system sick. For this the banking system will have to introspect. RBI data show that about 35 percent of scams in the banking sector are internal, which are the result only of the connivance of junior and middle management.
Clearly, while giving loans, banks need to show the necessary caution. The regulation and control of accounting experts is very important to reduce NPAs. Banks should be especially cautious when lending to Indian companies that have received large foreign loans. There is also an urgent need to tighten the internal and external audit system of banks.
In addition, the government needs to amend laws and give more powers to banks to recover NPAs. Junior officers are often held responsible for the mess. However, important decisions are made by the Credit Sanction Committee made up of senior executives. Therefore, it is equally important that senior officials be held accountable.
It should also be noted that the rapid turnover of employees in the loan department is just as important. Public sector banks should set up an internal rating agency for rigorous evaluation of large projects before sanctioning loans. Implementing an effective management information system (MIS) is essential to monitor early warning signals about business projects.
The RBI has no oversight capacity to conduct forensic audits and should be reinforced with human and technical resources. Financial fraud can be greatly reduced by using artificial intelligence to control financial transactions. Due consideration should be given to the office’s input on borrowers ’backgrounds and other relevant points, which are important in assessing risks.
India has seen massive bank scams over the years and these are the only ones that have come to light, while there is fear that all the scams are still hidden. The need of the moment is that instead of continually canceling large corporate bad loans, India needs to improve its debt recovery processes. The mere creation of National Asset Reconstruction Company Limited or “Bad Bank” is not the real solution. Banks must conduct a quarterly fraud risk assessment. It is true that the Government of India and the Reserve Bank of India have taken some steps to address the issue of scams in the banking sector, but there is a long way to go in this direction.
(The author is an assistant professor at the Atal Bihari Vajpayee Institute of Management and Entrepreneurship, JNU)
Edited by: Arun Kumar Singh