Rs 29,000 crores... India's top 3 'Bhagodas' namely Nirav Modi, Vijay Mallya and Jatin Mehta duped India's state-owned and private banks and escaped India. These fraudsters have sought a safe stay in fugitive-friendly colonies of the UK. Former RBI deputy governor Subir Gokarn compared bank's bad loans to cancer. If not treated, the patient would die.
As of September 2017, nine of India’s 21 state-owned banks have more than 15% gross bad assets. IDBI Bank Ltd continues to top the list with almost one-fourth of its loans turning bad (24.98%). Followed by IDBI, the Indian Overseas Bank has 22.73% bad loans, then followed by UCO Bank (18.74%), United Bank of India (18.8%), Bank of Maharashtra (18.54%), Central Bank of India (17.27%), Dena Bank (17.23%), Oriental Bank of Commerce (16.3%) and Corporation Bank (15.28%). India's largest lender, the State Bank of India has 9.83% bad loans.
The holes in India's banking system calls for tougher laws and fixed accounting standards. Recently, the cabinet approved the establishment of National Financial Reporting Authority. The decision aims at the establishment of NFRA as an independent regulator for the auditing profession which is one of the key changes brought in by the Companies Act, 2013. The need for establishing NFRA has arisen on account of the need felt across various jurisdictions in the world, in the wake of accounting scams, to establish independent regulators, independent from those it regulates, for enforcement of auditing standards and ensuring the quality of audits to strengthen the independence of audit firms, quality of audits and, therefore, enhance investor and public confidence in financial disclosures of companies.
The Modi government also plans to pass The Fugitive Economic Offenders Bill 2018 in the budget session. The Bill makes provisions for a Court ('Special Court' under the Prevention of Money-laundering Act, 2002) to declare a person as a Fugitive Economic Offender. A Fugitive Economic Offender is a person against whom an arrest warrant has been issued in respect of a scheduled offence and who has left India so as to avoid criminal prosecution, or being abroad, refuses to return to India to face criminal prosecution. only those cases where the total value involved in such offences is 100 crore rupees or more, is within the purview of this Bill.
RBI fines 3 banks for holes in the banking system
The Reserve Bank of India has stepped in the detailed scrutiny of banks processes after the PNB disclosure of Nirav Modi scam.
The RBI has imposed a monetary penalty of ₹ 30 million on Axis Bank for non-compliance with the directions issued by RBI on Income Recognition and Asset Classification (IRAC) norms. The penalty was imposed for not following RBI directions in assessment regarding Non Performing Assets as per Banking Regulation Act 1969.
State Bank of India, India's largest lender has imposed a monetary penalty in reference to currency chest inspection by RBI in 2 of its branches where counterfeit notes were found. The State Bank of India has been imposed a fine of ₹ 4 million by RBI for non-compliance with the directions issued by RBI on Detection and Impounding of Counterfeit Notes.
State-owned India Oversea Banks was fined ₹ 20 million for flouting Know Your Customers norms. A fraud was reported it one of its branches and bank officials failed to explain the regulator on why it should not be fined.
The scams are here to stay, at least for a few years. Banking think tanks need to make process design that prohibits anybody taking advantage of the system. Technologies like Blockchain, Big Data, FinTech and government regulation like Aadhaar linking and NFRA may be a ray of hope.
- Chaitanya Kulkarni
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