Lok Sabha Question No. 701 (UNSTARRED), answered on 2018-12-14
Subject: Measures to Prevent Bank Frauds
Ministry: FINANCE
Asked by: RAJAN BABURAO  VICHARE

## GOVERNMENT  OF INDIA

## LOK SABHA UNSTARRED QUESTION NO. 701

## MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL  SERVICES

## TO BE ANSWERED ON THE 14 TH  DECEMBER 2018/ AGRAHAYANA 23, 1940  (SAKA) Measures to Prevent  Bank Frauds

## 701.  SHRI RAJAN  VICHARE:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  a Committee  has recommended  for taking  corrective  measures  and bring  regulations to plug loopholes  and ensure  that  such frauds as happened  in the PNB do not take  place,  if so, the details  thereof;
- (b) whether   the  said Committee   also  recommended   scrutiny   of  large   loans  in  the cooperative sector,  if so, the details  thereof;
- (c) whether   the  Committee   has  urged   the  Government   to  instil   confidence   of  customers   and investors  in the credibility of  State  run   banks   to  rub   aside  the cry   to  privatise   Public   Sector   Units banks,  if so, the details  thereof;  and
- (d) the reaction  of the Government  thereto?

## ANSWER Minister of State in the Ministry  of Finance (SHRI SHIV PRATAP  SHUKLA)

(a) to (d): The Fifty  Seventh  Report  of the Standing  Committee  on Finance  on Demands  for Grants (2018-19) of the Ministry  of Finance  made  recommendation in this  behalf.

With   regard   to  prevention   of  frauds,   Reserve   Bank of  India  (RBI)  mandated   banks   to  implement certain   measures   for  strengthening   the  SWIFT   operating   environment within   stipulated   deadlines. Further,  Government  issued instructions  to Public  Sector  Banks (PSBs) on 'Framework  for timely detection,  reporting,  investigation etc. relating  to large  value  bank  frauds',  which  provides, inter-alia that  all  accounts  exceeding  Rs. 50 crore,  if classified  as Non-Performing Assets, should  be examined by banks  from the angle of possible  fraud.  Other  measures  taken  to control  and prevent  frauds in banks,  are as follows:

- (ii) For enforcement of auditing standards and ensuring the quality of audits, Government  has initiated  establishment   of  National   Financial   Reporting   Authority as  an independent  regulator.
- (i) For  deterring   economic   offenders  from  evading   the  process  of  Indian   law   by remaining  outside  Indian  jurisdiction, Government  has introduced  the Fugitive  Economic Offenders   Bill,   2018  to  provide   for  attachment   and  confiscation   fugitive   economic offender's  property  and has advised PSBs to obtain  certified  copy  of the passport  of the promoters/directors and other  authorised  signatories  of companies  availing  loan  facilities of more than  Rs. 50 crore.
- (iii) To send a clear message that  borrowers  cannot  wilfully default  and continue  to enjoy ownership  of their  assets, wilful  defaulters  and connected  persons  have been debarred  from participating in the resolution  process under the  Insolvency  and Bankruptcy Code (IBC).
- (iv) Launch  of Central  Fraud  Registry  (CFR),  a web-based searchable  database of frauds reported  by  the banks,  containing  data for the last 13 years  has been made operational  by RBI in January  2016.

In addition,  under the PSB Reforms  Agenda  announced  by  the Government,  PSBs have committed to  clean  and  commercially prudent   business  through   Stressed  Asset  Management   Verticals   for focussed recovery,  rigorous  due diligence  and appraisal  for sanction  by   scrutinising   group   balance sheets,  at  least  10%  share  in  consortium   lending,   ring-fencing   of  cash  flows,   initiating use  of technology  and analytics  for comprehensive  due diligence  across data sources,  building  capacity  for techno-economic  valuation,  clean and effective post-sanction  follow-up  on large-value  accounts  by tying  up with  Agencies  for Specialised  Monitoring, and strict  segregation  of pre- and post-sanction roles for enhanced  accountability.

As regards  scrutiny  in the cooperative  sector,  National  Bank  for Agriculture and Rural  Development (NABARD)  has informed  that very  few cooperative  banks  have issued large  loans,  and these loans are mainly  financed  by  State Cooperative  Banks and few District  Cooperative  Central  Banks.  The top 20  accounts   of  cooperative   banks   are  examined   by   NABARD   during   the  course  of  statutory inspections   with   reference   to  their   appraisal,   operations,   monitoring, documentation   and  asset classification.  Thus,  there  is a system  in place for scrutiny  of large  loans  in cooperative  banks. To instil  confidence  of customers  and investors  in the credibility of State run  banks,  Government has  followed   a  comprehensive   4  R's  approach   of  Recognition, Resolution,   Recapitalisation and Reforms i.e. Recognition   of  restructured   standard   assets  as  NPAs,   initiated   with   Asset  Quality Review   in  2015,  Resolution   process  has  been  strengthened   by   changing   the  creditor-debtor relationship   through   the  Insolvency   and  Bankruptcy Code,   Recapitalisation amounting   to  Rs. 2,11,000 crore   has  been  initiated   in  October   2017  to  strengthen   balance-sheets   of  public   sector banks and PSB Reforms  Agenda.