Sunday, February 25, 2018

Genesis of corporate loan defaults / frauds

Image result for bank loan frauds

List of recent bank frauds:

Borrower / Promoters
Amount - defaulted / defrauded
KFA /Mallya
SBI / others
Winsome diamonds / Jatin Mehta
PNB /others
Zoom Developers /Vijay Choudhary
Central Bank of India / others
Nirav Modi / Firestar
PNB / others
Geetanjali/ Mehul Choksi
PNB / others
Deccan Chronicle / T Venkata Rami Reddy
Canara Bank / some private banks
Dwaraka Das International / Sabhya Seth
Rotomac / Vikram Kothari
PNB / others
Electrotherm / Mukesh Bhandari
Central Bank of India / others
Sterling Biotech /  Chetan Jayantilal Sandesara
Andhra Bank / others

( The above list is not exhaustive / comprehensive)

In the last three years, the PSU as well as private banks have lost around Rs 45,000 Cr on account of various banking frauds, including the latest Jewellery loan fraud at PNB. As on Sept 2017, the total gross non performing loans of PSU banks were above Rs 7 lac Cr and that of private banks at Rs 1 lac Cr. The banks are likely to add another lac Cr this year to gross NPA. Let us look at how banks sanction loans to big corporates. The chartered accountant/s of the borrower prepares a rosy project report and approaches a PSU bank, based generally in Mumbai or New Delhi for loan sanction. The chartered account convinces the bank that they have to take only 15-20% the proposed loan and the balance is being tied up with others banks, which is not a fact. The same project report is the appraisal report of the bank (with minimum value addition) and the same is placed before the appropriate authorities for sanction. On getting sanction from the bank the chartered account and / or with the above bank’s officials approaches other banks, these persons or entities are called ‘loan syndicators’ for balance portion of the loan. Likewise they rope in other banks and tie up the entire loan. In some cases the bank officials have not interacted with main promoter, might not seen the registered / corporate office and discrete market information on promoters, projects / industry prospects may not have been gathered. Once the documentation for loan release are over, banks disburse their portion of loan to the lead banker as requested by the borrower. It is the responsibility of the lead bank to ensure proper utilization of the funds released to the borrower. Due to improper check on the utilization of funds, funds are being used or diverted to purposes other than what it is really meant. This is the biggest loophole in bank frauds. Consortium banking always works to the advantages of the borrower. Borrowers confuse the banks, and the borrowers always says that the other bank has done it why can't you do? When things go wrong bankers start blame each other, saying we relied on you. Monitoring system of the loans not adhered properly. Monitoring post sanction of loan is weaker in PSBs compared to the Private banks on account of diverse loan portfolio, lack of expertise and modern technological resources, and lack of manpower and motivated employees, who are not appropriately incentivized to detect early frauds or prevent them. Periodical site / plant visit, interaction with the promoters, their competitors, gathering independent information on the project / industry they have financed are lacking. Deficient loan appraisal system and improper monitoring of loans are the major reasons why loan goes bad / fraud happens in banks, in most cases. The other reasons, inter alia, includes corruption at various level, sanction of loans based on influence, political or otherwise.

No comments:

Post a Comment