Banks should conduct regular legal audit to sanction loans above Rs 5 crore
Updated: Jun 08, 2013 02:50:04pm
New Delhi, Jun 8 (KNN) In order to show red signal to frauds, the Reserve Bank of India told banks to do a periodic legal audit and re-verification of title deeds of loans above Rs 5 crore.
They should also re-verify the title deeds with relevant authorities as part of the regular audit exercise till the loan stands fully repaid.
The RBI directive comes following Financial Services Secretary, Rajiv Takru accusing banks of being lenient with loan takers and warning them of stringent action if they do not set the house in order and curb activities like reckless lending, money laundering and unnecessary restructuring of loans.
The central bank advised banks to furnish a review note to their board/audit committee of the board at quarterly intervals on an ongoing basis.
Further, banks should independently verify the property valuation certificate and legal certificate submitted by the borrower.
The review note should contain information in respect of legal audits covering aspects such as the number of loan accounts due for legal audit for the quarter, how many accounts covered, list of deficiencies observed by the auditors, and steps taken to rectify the deficiencies.
It should also mention the number of accounts in which the rectification could not take place, course of action to safeguard the interest of bank in such cases, and action taken on issues pending from earlier quarters.
Two years back, the auditors of banks were required to look into the genuineness of the title documents especially for large value loans. This move was prompted by an RBI study of large value frauds, especially in the housing loan segment.
According to a research done by Ernst & Young Fraud Indicator in 20122-12, the financial services sector was the worst hit, with more than 63 per cent of the total fraud cases reported in 2011–12, followed by technology and transportation.
The total losses suffered due to fraud, recorded in this report, amount to Rs 66 billion.
In the financial services sector, banking was the major victim with 84 per cent of the total number of reported fraud cases.
According to the data compiled by the RBI, the money lost by banks due to scams and fraud has doubled in the past four years. Losses incurred by banks due to fraud increased by 88 per cent in 2010-11 to exceed Rs 37.9 billion (more than Rs 20.1 billion in 2009–10).
The Central Bureau of Investigation’s (CBI’s) Bank Securities and Fraud Cell registered criminal cases amounting to a total of Rs 40 billion in 2011, while fraud cases worth Rs 25 billion have already been registered from January to July 2012. Increasing incidents of fraud indicate that there is an urgent need for banks to have an enhanced system of checks and balances.
India’s banking sector is also reeling under the threat of mounting non-performing assets (NPAs) that rose by 46 per cent to Rs 1.37 trillion in fiscal 2012. (KNN)
They should also re-verify the title deeds with relevant authorities as part of the regular audit exercise till the loan stands fully repaid.
The RBI directive comes following Financial Services Secretary, Rajiv Takru accusing banks of being lenient with loan takers and warning them of stringent action if they do not set the house in order and curb activities like reckless lending, money laundering and unnecessary restructuring of loans.
The central bank advised banks to furnish a review note to their board/audit committee of the board at quarterly intervals on an ongoing basis.
Further, banks should independently verify the property valuation certificate and legal certificate submitted by the borrower.
The review note should contain information in respect of legal audits covering aspects such as the number of loan accounts due for legal audit for the quarter, how many accounts covered, list of deficiencies observed by the auditors, and steps taken to rectify the deficiencies.
It should also mention the number of accounts in which the rectification could not take place, course of action to safeguard the interest of bank in such cases, and action taken on issues pending from earlier quarters.
Two years back, the auditors of banks were required to look into the genuineness of the title documents especially for large value loans. This move was prompted by an RBI study of large value frauds, especially in the housing loan segment.
According to a research done by Ernst & Young Fraud Indicator in 20122-12, the financial services sector was the worst hit, with more than 63 per cent of the total fraud cases reported in 2011–12, followed by technology and transportation.
The total losses suffered due to fraud, recorded in this report, amount to Rs 66 billion.
In the financial services sector, banking was the major victim with 84 per cent of the total number of reported fraud cases.
According to the data compiled by the RBI, the money lost by banks due to scams and fraud has doubled in the past four years. Losses incurred by banks due to fraud increased by 88 per cent in 2010-11 to exceed Rs 37.9 billion (more than Rs 20.1 billion in 2009–10).
The Central Bureau of Investigation’s (CBI’s) Bank Securities and Fraud Cell registered criminal cases amounting to a total of Rs 40 billion in 2011, while fraud cases worth Rs 25 billion have already been registered from January to July 2012. Increasing incidents of fraud indicate that there is an urgent need for banks to have an enhanced system of checks and balances.
India’s banking sector is also reeling under the threat of mounting non-performing assets (NPAs) that rose by 46 per cent to Rs 1.37 trillion in fiscal 2012. (KNN)
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