Banks given 15 days to unearth any suspicious accounts

Stung by a the recent uncovering of a spate of banking frauds, the finance ministry today asked public sector banks (PSBs) to probe all Non-Performing Asset accounts of over Rs50 crore for possible fraud and report it to the Central Bureau of Investigation if found.

Non-Performing Assets or NPAs is of course Indian banking speak for loans gone sour, or bad and doubtful loans.

The Department of Financial Services under the ministry has given the PSBs 15 days to detect fraudulent or wilful defaults on repayment.

The banks have been asked to involve the Enforcement Directorate (ED) or the Directorate of Revenue Intelligence (DRI) to inquire into possible violations of the Prevention of Money Laundering Act and the Foreign Exchange Management Act.

They have also been asked to come up with "pre-emptive" action plan within a fortnight to combat rising operational and technical risks, and assign clear accountability to senior officials.

These directions come after Punjab National Bank reported a Rs12,700 crore fraud through the alleged misuse of letters of undertaking (LoUs) by billionaire jeweller Nirav Modi and his associates (See: PNB reports Rs10,000-cr fraudulent transactions in its Mumbai branch).

Following this, other frauds involving jewellers and other companies have surfaced in quick succession recently.

Financial Services Secretary Rajiv Kumar through a tweet informed that managing directors of PSBs have been directed to detect bank frauds and refer the cases to the CBI.

"PSB MDs directed to detect bank frauds & consequential wilful default in time & refer cases to CBI. To examine all NPA accounts > Rs 50Cr for possible fraud," the secretary said in the tweet.

Kumar further said that the chief vigilance officer of the bank concerned will have to vet complaints and coordinate with CBI for frauds exceeding Rs50 crore.

Also, banks will have to seek borrower status report from Central Economic Intelligence Bureau (CEIB) on the account turning to a non-performing asset (NPA) or bad loan and CEIB will have to revert in a week.

The 12 large NPA accounts referred to the National Company Law Tribunal (NCLT) at the behest of the Reserve Bank of India have outstanding loans of Rs1.75 lakh crore.

In the second list, RBI identified 29 large NPA accounts and asked banks to resolve them under the Insolvency and Bankruptcy Code (IBC).

Executive directors and chief technology officers (CTOs) of PSBs have been asked to prepare a blueprint to enhance preparedness for combating increasing risks, Kumar said in another tweet.

"15 days deadline for PSBs to take pre-emptive action and identify gaps / weakness to gear up for rising Ops and Tech risks; To learn from best practices and pinpoint strategies including tech solutions; clear accountability of senior functionaries," he said.

The PSBs will have to come out with comparative assessment of their banks' operational risk management practices with best practices and "identify gaps and areas for improvement", he said.

The EDs and CTOs, he added, will have to prepare reports based on best practices and minimum acceptable standards and suggest action points including technological solutions.

The Indian Banks' Association (IBA) would soon be convening a meeting of banks to prepare an action plan, reports said, adding that the large lenders would be asked to handhold smaller banks to making the system foolproof.