RBI asked to keep close watch on fund diversion

Moneylife Digital Team 03 September 2014

There are a few instances where defaulting borrowers diverted funds by opening multiple current accounts outside the members of the consortium that provided the debt

The Finance Ministry has asked Reserve Bank of India (RBI) to tighten lending norms to prevent borrowers from opening multiple current account outside their consortium of banks.

There are a few instances where defaulting borrowers indulged in diversion of funds have taken place by opening of multiple current account outside the members of the consortium.

Therefore, sources said, the Finance Ministry has urged RBI to tighten the norms and monitoring system so that such activities could be prevented.

According to sources, Kingfisher Airlines allegedly diverted funds by opening a current account in HDFC Bank and has a balance of Rs7.5 crore as on date.

This fact was not known to the consortium of lenders headed by State Bank of India (SBI). These banks have an outstanding debt of Rs6,521 crore from the now-grounded carrier.

Such diversion can be monitored by Reserve Bank as it is sector regulator and there is a need to strengthen the monitoring mechanism.

There has been a spate of defaults taking place in banking system. Majority of them are due to slow economic growth but there is small proportion of cases where defaults are intentional.

Recently, the Finance Ministry had ordered limited forensic audit into some non-performing accounts of Kolkata— based UCO Bank to find out whether there were any irregularities in sanction of loans.

Forensic audit is being conducted against Dena Bank and Oriental Bank of Commerce (OBC) where some officials were suspected of misappropriating funds worth Rs436 crore from their fixed deposit customers.

Gross NPA of the public sector banks increased to Rs2.27 lakh crore at the end of March 2014 from Rs1.64 lakh crore a year ago.

Financial Stability Report released by RBI recently said that infrastructure, iron and steel, textiles, mining and aviation services contributed significantly to the level of stressed advances.

The share of these five sub-sectors in total advances is the highest for public sector banks.

The amount of loan restructured rose more than 11-fold between 2010-11 and 2012-13.

At the end of 2010-11, the restructured loans stood at Rs6,614.40 crore that rose significantly to Rs76,479.06 crore at the end of 2012-13.

Comments

User

1 decade ago

There should be restriction on the bank which allows opening of current account in the name of customers who have borrowed from elsewhere. If banks knowingly open it, they should be penalised. The consortium members also should not be careless as any movement of funds from their account to another Bank should put them on alert.