MUMBAI: Lenders led by SBI have taken a call that, in instances of fraud, rather than report the entire loan amount as a fraudulent one, banks will only report that portion that is illicitly obtained or misappropriated.
To identify this amount, banks will immediately appoint
forensic auditors
who will certify the extent to which there has been a divergence from lawful borrowing.
In a recent meeting, SBI is understood to have proposed this to other banks. This follows the RBI slapping penalties on a dozen banks for delays in reporting fraud. Announcing the penalty, the RBI had said that banks were advised to report fraud immediately when the borrowings are under investigation by enforcement authorities. However, these banks continued to classify the loans as business defaults.
The purpose is to quantify the amount that is misused rather than flagging the entire loan amount as suspect, said a senior banker. "In case of, say, gems and jewellery, the entire amount could be classified as fraud. But when in the case of a manufacturing unit there are underlying assets, it is clear that the entire amount borrowed is not compromised. So, declaring Rs 40,000 crore as the fraud amount is misinterpretation and also sends the wrong signal to potential investors," said a banker present in the meeting.
The RBI's prudential guidelines require that, as soon as a fraud is detected, the entire amount due to a bank - irrespective of the quantum of security held - be provided for over a period not exceeding four quarters. The RBI did not name any borrower in its statement announcing penalties on banks. However, most banks that were penalised soon thereafter informed the stock exchanges that they have classified Bhushan Power and Steel as a fraud account.
Punjab National Bank, the lead banker to the company, was the first to classify the loan as fraud. The reporting sent confusing signals to the market on the hit to the bank's profits. Allahabad Bank, which had a Rs 1,175-crore exposure to the power company, saw its stock price tank 11%.
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