Lok Sabha Question No. 1549 (UNSTARRED), answered on 2019-07-01
Subject: Performance Evaluation of PSBS
Ministry: FINANCE
Asked by: Imtiaz Jaleel Syed, Asaduddin Owaisi

## GOVERNMENT  OF INDIA MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL SERVICES

## LOK SABHA

## UNSTARRED QUESTION NO. 1549 TO BE ANSWERED ON THE 1 ST  JULY 2019/ ASHADHA  10, 1941  (SAKA)

Performance  Evaluation  of PSBs

1549.  SHRI SYED IMTIAZ JALEEL:

SHRI ASADUDDIN  OWAISI:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  the Government,  in consultation  with  Reserve  Bank of India and Bank Board  Bureau,   is  developing   an  objective   framework for  performance   evaluation   of public  sector  banks;
- (b) if  so,  the  details   thereof   and  the  extent   to  which   this   step  is  likely  to  improve transparency, accountability and efficiency  of the State-owned  banks;
- (c) whether   in  view   of  the  frauds  in  recent   past  the  Government   proposes   to introduce   a  mechanism   through   this  framework   in  banks   to  immediately track   frauds especially  where  employees  of the banks  are involved;  and
- (d) if so, the details  thereof  and the time  by  which  this objective  framework is likely to be implemented?

## ANSWER The Finance Minister (SMT. NIRMALA  SITHARAMAN)

(a)  and  (b):  Financial   performance   and  operational   efficiency   of  banks   is  objectively reflected   in  their   annual   financial   statements.   As  per  the  existing   framework, under various  applicable  laws,  all  banks   including   Public   Sector   Banks   (PSBs)  are  required   to have their  annual  financial  statements  approved  by  their  respective Board of Directors, transparently disclose the same to stock  exchanges,  furnish  copy  thereof  to the Reserve Bank  of  India  (RBI),  and  present   these  at the annual general meeting of their shareholders  for approval  and adoption  after discussion.  As part  of this,  bank's  Board and shareholders   discuss  and  review   the  bank's   performance   and,  in  addition,   markets and  the  regulator   also  take   note  of  the  performance,   which   serves  to  strengthen accountability by  subjecting  the bank  to market  discipline  and regulatory supervision.

Further,   bank-wise   performance   regarding   implementation of  reforms   in  PSBs  for enhanced   efficiency   and  strengthened   arrangements   for  accountability is  being tracked and  measured   through   an  independent   agency,   using   an  objective,   transparent   and publicly  reported  'Enhanced  Access and Service  Excellence  (EASE)' Reforms  Index.

(c)  and  (d):  Government   has  issued  'Framework for timely detection, reporting, investigation etc. relating  to large  value  bank  frauds'  to Public  Sector  Banks  (PSBs), which provides, inter-alia , that -

- (ii) examination  be initiated  for wilful  default  immediately upon reporting  fraud to RBI; and
- (i) all  accounts  exceeding  Rs. 50 crore,  if classified  as Non-Performing Assets (NPAs), be examined  by  banks  from  the angle  of possible  fraud;
- (iii) report  on the borrower  be sought  from the Central  Economic  Intelligence  Bureau  in case an account  turns  NPA.

In addition,  a number  of other  measures  have also been taken  to improve  prevention, detection  and reporting  of frauds,  including, inter-alia, the following:

- (ii) for enforcement of auditing standards and ensuring the quality of audits, Government   has  established   the  National   Financial   Reporting   Authority as  an independent  regulator;
- (i) Central   Fraud   Registry   (CFR),   based  on  Fraud   Monitoring Returns   filed  by   banks and select financial  institutions, has been set up by  RBI as a searchable  online  central database for use by  banks;
- (iii) for management  of fraud risk  and to direct  the focus of banks  to early  detection  of loan frauds,  prompt  reporting  to RBI and investigative  agencies and timely  initiation of staff accountability proceedings,  RBI has issued a framework  for dealing  with  loan frauds and Red Flagged  Accounts  (RFA);
- (v) RBI has instructed  banks  to report  deficient  third  party  services  (such as legal  search reports,  property  valuers'  reports etc .) and ineffective  action  against  collusion  of these providers   with   fraudsters   to  the  Indian   Banks'   Association,   which   maintains   a caution  list  of such service  providers;  and
- (iv) RBI has issued a circular  to all banks  in February,  2018 to implement  security  and operational   controls   with   respect   to  SWIFT   messaging   system in  a  time-bound manner;
- (vi) Government  has formed an inter-agency   coordination   committee  to  look   into   the large  value  bank  frauds.

Further,   all  PSBs  have  a  well-established   vigilance   mechanism   headed  by   a  Chief Vigilance  Officer  (CVO)  directly  appointed  by  the Government  of India.  CVOs  of banks keep a close watch  on various  aspects of the bank's  functioning.  RBI has issued various guidelines   on  examining   staff  accountability  under   various   circumstances.   As  per  RBI instructions   on  the  internal   control   and  inspection/audit system in  banks,   banks   are advised regarding  fixing  of staff accountability aspect of irregularities, malpractices  etc.,  at all   levels,   at  the  appropriate   time.   Further,   as  per  inputs   received   from   PSBs,  PSBs impose penalty  against  erring   employees   after  due  process  including   dismissal/removal from service/ compulsory  retirement  from service  etc. and complaint  is lodged with  the police  or the Central  Bureau  of Investigation.