Forensic audits and more: RBI to step up vigilance on banking sector to prevent frauds

Mumbai: Reserve Bank of India (RBI) Deputy Governor R Gandhi today said “continuous vigilance andintelligence gathering” would be the central bank’s key focus areas to prevent recurrence of frauds.

“Continuous vigilance and intelligence gathering are two items on which we are concentrating,” Gandhi said on thesidelines of an industry event. Gandhi emphasised the need to go “deeper” and hence, the central bank may also do forensic audits of banks.

“One has to go behind the fraud and their modus operandi to find out what are the loopholes…which need to be corrected. For that, forensic audits may be done,” he said. He said the RBI has already instructed lenders, stressing the importance of information sharing, especially in face of rising bad assets, which touched a high of 4.1 per cent in March 2014, rising from 3.7 per cent during the previous 12-month period.

“The database of reporting mechanism is already in place on high loan items. They also have to report stressed assetsto this database. That is the first step to increase information flow for all the lenders,” he said. In the recent past, officials of three public sector banks, including Syndicate Bank’s chairman and managing director S K Jain and three corporate leaders were arrested in an alleged cash-for-loan scam. Besides, few senior officials of Dena Bank and Oriental Bank of Commerce (OBC) were accused of defrauding Rs 436 crore of their customers fixed deposits through fraudulent means.

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The RBI has ordered forensic audits of both the banks. Asked if such incidents and the caution exercised by bankers due to these would slow down credit growth, Gandhi replied in the negative saying that economic growth has a bearing on the credit pick-up.

“Credit growth is based on economic development. When economy develops, automatically credit will pick up. Creditwill grow based only on economic growth,” he said. “Banks are hopeful and we are also hopeful that in the coming months, there will be turnaround in investments. Let us see thereafter, credit will also grow,” he said.

Asked about shadow banking, Gandhi said the domestic situation is a bit different from the rest of the world. The problem in India revolves largely around consumer protection, and not around complex products which is the case elsewhere in the world, he said.

“Here, it is more of customer protection and there are institutions that take deposits or that type of monies, whichare under the law. Sometimes, there are institutions like unincorporated bodies accepting deposits, about which we haveconcerns,” Gandhi said.

Gandhi also said that there is a need to develop more “efficient” financial markets, adding that financial development has a positive effect on overall growth.

PTI