Lok Sabha Question No. 1248 (UNSTARRED), answered on 2020-09-19
Subject: Monitoring of Banking Mechanism
Ministry: FINANCE
Asked by: Kanakmal Katara

## GOVERNMENT OF INDIA MINISTRY OF FINANCE

## LOK SABHA UNSTARRED QUESTION NO-t1248

ANSWERED ON-19.09.2020

## Monitoring of Banking Mechanism

Will the Minister of FINANCE be pleased to state:

- a) whether   the condition of banks further worsen due to interference in the working of banks the time of United Progressive Alliance Government; got during
2. the steps taken by the Government to strengthen the monitoring of banking mechanism? being
- (6) if the details thereof with the corrective action taken/ proposed to be taken by the Government in this regard; and along SO,

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF FINANCE

(SHRI ANURAG SINGH THAKUR)

a) to (c): The 2014 report of the P. J Nayak Committee to review governance of banks of India observed that   several arms of the Government issue informal oral instructions advice   which may never be on official record; a style of control that deeply politicises bank governance, and that when this also extends to loan sanctions, often at the behest of the corporates and other borrowers, and spawns an informal profession of intermediaries hawking loan  proposals to banks, the industry becomes deeply imperiled During subsequent discussions at the Sangam interaction held by the Government in January 2015 with the chief executives of Public Sector Banks (PSBs) , Government conveyed in very clear terms that it will not interfere in the working of PSBs, including in commercial decisions, and advised all Government of India Ministries, /Departments vide Ministry of Finance'$ office memorandum dated 13.1.2015 that banks   should take all commercial decisions in the best interest of the organisation and that all decisions should be taken based on the facts of the case and objectivity: May proffer put banking Gyan

Government has taken a number of steps to strengthen the monitoring of the banking mechanism in PSBs, including, inter the following: alia,

- Since 2015, appointments of chairpersons, chief executives and other wholetime directors of PSB are length through a professional The Board has  ensured transparency in the selection process by declaring selection results on the same as the interaction/interview with the candidates. This has strengthened the independence of the selection process and thereby strengthened monitoring of the banking mechanism by the bank's Board and management: being day
- The position of the Chairman and Managing Director has been bifurcated since 2015 into those of a non-Executive Chairman and a Managing Director and Officer in nationalised banks,   strengthening   independent Board oversight and monitoring of the mechanism in PSBs. banking
- (iv) Enactment of Fugitive   Economic  Offenders 2018 for confiscation of fugitive economic offenders property, Government advisory for obtaining of passport details of promoters, directors and authorised signatories of companies availing of loans above <50 crore by PSBs, and empowerment by the Government of PSB heads to request for issuance of look-out circulars have strengthened monitoring and effectiveness of the mechanism to deal with the issue of borrows the jurisdiction of Indian courts: Act, banking fleeing
- (iii) Transpatent and tribunal-monitored resolution process under the Insolvency and Bankruptcy Code 2016 has   strengthened   monitoring of the banking mechanism of resolution by fundamentally  changing the creditor-borrower relationship, away control of the defaulting company from promoters/ owners, and debarring wilful defaulters from the resolution process taking
- Monitoring of the mechanism for underwriting and monitoring of loans the use of third-party data sources for comprehensive due diligence across data sources; thus   mitigating risk on account of misrepresentation and fraud, and by the institution of objective riskand scrutiny and comprehensive; automated Early Warning Systems in PSBs for ensuring proper appraisal, proactive monitoring of loans, timely detection and reduction in slippage into   non-performing assets (NPAs): banking scoring
- Comprehensive examination by PSBs of about Rs. 6 lakh crore of NPA accounts exceeding <50 crore from the angle of possible fraud and wilful default between April 2018 and June 2020; and
- vi) Strengthening of monitoring of the banking mechanism is also reflected in \_
- B reduction in the occurrence of bank frauds in PSBs, with the amount involved in frauds declining steeply from the of 0.96% of bank loans in the financial year (FY) 2013-14 to 0.15% in FY2019-20. Steep peak
- (viii) Monitoring of bank mechanism has been made more effective in consortium with minimum 10% exposure mandated for a PSB to participate in such lending; reducing the membership to a manageable number: lending being
- (vii)   Monitoring of the bank mechanism has also been strengthened through putting in place of  Board-approved Loan Policies of PSBs mandatory   tying up necessary clearances/ approvals and linkages before disbursement; scrutiny of borrowing entity s group balance-sheet and fencing of cash flows
- (ix) Monitoring of loans has been strictly segtegated from sanctioning roles in highvalue and   specialised   monitoring   agencies   combining financial and domain knowledge have been deployed for effective monitoring of loans above Rs. 250 crore: loans,

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