Check NPAs above Rs 500 mn for possible fraud, alert CBI: Govt tells banks

Lenders told to plug operational, technological loopholes in 15 days

Jolted by the Punjab National Bank fraud, the finance ministry on Tuesday directed managing directors of public sector banks to examine non-performing asset (NPA) accounts of more than Rs 500 million for possible fraud and report any cases of wilful default to the Central Bureau of Investigation (CBI). 

The ministry also set a 15-day deadline for PSBs to put in place an effective system to address rising operational and technological risks. These directions are part of the reforms that the government had packaged with the recapitalisation plan for banks.

In a couple of tweets, Financial Services Secretary Rajiv Kumar asked banks to involve the Enforcement Directorate and the Directorate of Revenue Intelligence (DRI) for any violations of the Prevention of Money Laundering Act, the Foreign Exchange and Management Act, and export-import norms.

“NPA cases above Rs 50 crore (Rs 500 million) to be examined for fraud. Reported fraud to be examined for wilful default,” Kumar said. He wanted banks to promptly identify fraud and take action within prescribed deadlines.

While Kumar did not elaborate on deadlines, an earlier circular by the Reserve Bank of India mandated banks to furnish a flash report for fraud involving at least Rs 50 million within a week of such incidents coming to the notice of the bank’s head office.

The secretary directed chief vigilance officers of PSBs to vet complaints and coordinate with the CBI for fraud cases involving more than Rs 500 million. Banks were also asked to seek borrowers’ status report from the Central Economic Intelligence Bureau on accounts turning NPAs. The Bureau would revert in a week, he said.

Executive directors and chief technology officers (CTOs) of PSBs have been asked to prepare a blueprint to enhance preparedness for combating various kinds of risks.

“Fifteen days deadline for PSBs to take pre-emptive action and identify gaps/weakness to gear up for rising Ops (operations) and Tech (technological) risks; To learn from best practices and pinpoint strategies including tech solutions; clear accountability of senior functionaries,” Kumar tweeted.

The development comes against the backdrop of PNB reporting a Rs 114 billion fraud through misuse of letters of undertaking (LoUs) by billionaire jeweller Nirav Modi and associates. The amount involved in the fraud has now touched Rs 127 billion.

Each PSB will have to form a group comprising EDs and CTOs, who will “learn” from best practices across the banking sector and identify weaknesses in the existing set-up. These groups would have to come out with comparative assessment of their banks’ operational risk management practices with best practices and “identify gaps and areas for improvement”, the secretary said.

Boards of banks have been asked to assign clear accountability to senior functionaries for implementation and compliance of the report.

Technological and operational gaps were allegedly responsible for the PNB fraud. Operations conducted through SWIFT could not be captured by PNB’s core banking solution (CBS). The bank is now trying to upgrade banking software Finacle, provided by Infosys, to integrate SWIFT and CBS by March-end.

Though the updated version Finacle 10 does not integrate SWIFT with CBS per se, it has the compatibility to do so. There was no compatibility in the previous versions of Finacle.

The government announced equity infusion to the tune of Rs 800 billion through recap bonds and Rs 81.39 billion as budgetary support for 2017-18.