The finance ministry has asked banks to check all their loans above Rs 50 crore, which have been classified as bad asset, from “the angle of possible frauds”.

The Reserve Bank of India, too, has decided to build a public credit registry to capture data of all big loans as well as of wilful defaulters and match the data with Sebi, GSTN, Insolvency and Bankruptcy Board and other agencies to check for fraud.

Top finance ministry officials said these steps had been initiated keeping in mind the increasing number of such cases as well as the sums involved. Loan accounts worth Rs 69,755 crore were involved in banking frauds over the three years, with the Rs 14,000cr Nirav Modi-Mehul Choksi case earning the dubious reputation of being the biggest and most brazen one. “We have also asked all PSU banks to not only do a special audit of these loans but also place the report before the bank’s committee for review of NPAs,” the officials said.

According to data compiled by the RBI, Indian banks lost Rs 16,409 crore in 2015-16 in frauds and Rs 16,652 crore in 2016-17, which doubled to Rs 36,694 crore in 2017-18 after the Nirav Modi-Choksi case.

The number of fraud cases has also been rising – from 4,693 cases in 2015-16 to 5,076 cases in 2016-17 and 5,917 in 2017-18. The number of such cases reported by banks were generally hovering at around 4,500 in the last 10 years before their sudden spurt in 2017-18, say bankers.

“What is worrying is that after incurring such a high number of fraud cases and

losing such large sums, bankers remained gullible enough to continue with a

set-up which was lenient enough to allow such a large degree of frauds,” said Amit Banerjee, an independent merchant banker who specialises in East Asian Funds.

Bankers say there were parallels in the Winsome diamond case of 2012 with the Nirav Modi-case in 2018, yet both were detected after the alleged culprits fled India. Sanjay Bhattacharyya, former SBI managing director, said “After the horse bolted once, bankers should have exercised far greater caution.”

During 2017-18, PSU banks accounted for 93 per cent of frauds of more than Rs 1 crore, mainly on account of the charges against Nirav Modi and Mehul Choksi for defrauding Punjab National bank.

“One single scam has made us all sit up and steps are being initiated to curb fraud,” said top finance ministry officials.

The finance ministry has recently also given orders to PSU banks to take a report from the central economic intelligence bureau for all big borrowers.

RBI move

The RBI on its part has informed the ministry that it “proposes to initiate network analysis for the financial conglomerate (FC) groups to assess the systemic risks posed by them. The analysis would cover the major entities of a FC group in each financial market segment and intra-group exposures would also be considered. The findings would be shared with the regulators and significant trends and/or concerns would be discussed in the meetings of the Inter-Regulatory Forum”.

The ministry and RBI also intend to check the impact on quantitative and qualitative reporting by banks and align it with the supervisory framework.

Certain sectors such as realty, gems and jewellery are being monitored as these have reported a high concentration of cases.

According to a PwC India study, “The risk of loan loss is high in India. Due to lack of appropriate due diligence and monitoring of loans, the number of defaults has increased in recent years. The non-performing assets are growing in the last few years while GDP has been declining.”

The RBI has shortlisted six major IT companies, including TCS, Wipro and IBM India, to set up the wide-based digital public credit registry for capturing details of all borrowers and wilful defaulters.

The proposed PCR will also include data from entities like market regulator Sebi, the corporate affairs ministry, Goods and Service Tax Network (GSTN) and the Insolvency and Bankruptcy Board of India (IBBI) to enable banks and financial institutions to get a 360-degree profile of the existing as well as prospective borrowers on a real-time basis.