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Corporate frauds see a massive surge: SBI

The April–November period this year recorded 200 times more frauds compared to entire FY18.

Last Updated: Nov 29, 2019, 01.28 PM IST|Original: Nov 29, 2019, 07.41 AM IST
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SBI’s data include frauds with a value of at least Rs 100 crore.
MUMBAI: The number of frauds at State Bank of India (SBI), the country’s biggest mass-lender, has nearly trebled in the first seven months of this fiscal year in comparison with the whole of FY19, even as the regulator nudged high-street lenders to declare instances of fraud more quickly.

Data disclosed in the initial public offering (IPO) document of SBI Cards showed that large ticket corporate frauds worth Rs 26,757 crore were reported to regulators between April and November this year by SBI, compared with Rs 10,725 crore were reported in FY19. The comparison appears even starker when FY18 disclosures, at only Rs 146 crore, are considered.

Instances of fraud have risen to 48 so far in FY20 from 25 in FY19, and 8 in FY18. SBI’s data include frauds with a value of at least Rs 100 crore.

SBI didn’t respond to ET’s mailed queries.

The development comes at a time when the Reserve Bank of India (RBI) has been increasingly nudging lenders to become more proactive in the reporting frauds. It has also asked banks to examine unresolved NPAs worth more than Rs 50 crore from the fraud angle.

The majority of these frauds happened in the earlier years but were being declared now by the bank, analysts said. Currently, it takes nearly 55 months for a large ticket corporate fraud to be detected and reported by an Indian bank, according to data disclosed by RBI.

“Most of the accounts being declared fraud now have been NPAs for a long time; however, the official processes take time. In a few cases, forensic audit has also been initiated,” said a forensic expert working at a Big4 consulting company. “Banks will continue to see a rise in the frauds reported until all the legacy cases are resolved. It will take at least a year from now.”

Industry participants who spoke with ET said most of these frauds involve corporate loans, which have been siphoned off by the companies for unauthorized purposes. Some of them are also a result of the slump in business that led to non-payment of bank dues; however, the accounts were covered up. Hence, the actual health of the loan was not reflected on the books.

Other lenders too are seeing a surge in reported frauds. In a reply to Rajya Sabha, Union Finance Minister Nirmala Sitharaman said on November 19 that Indian banking system declared frauds worth ?95,760 crore during the period between April and November 2019.

After SBI, Punjab National Bank saw the highest frauds reported with a value of Rs 10,821crore.

“Comprehensive measures have been taken to prevent frauds, including directions to banks to examine all NPA accounts above Rs 50 crore from the angle of possible fraud, initiation of criminal proceedings, enactment of Fugitive Economic Offenders Act 2018,” said Nirmala Sitharaman in a reply to a question posted by a Rajya Sabha member in the ongoing winter session.

The FM further added that the creation of a Central Fraud Registry, empowering bank heads to request for issue of Look Out Circular, and establishment of National Financial Reporting Authority were some other measures being undertaken by the government to ensure timely reporting of frauds.

Several high-leverage companies are currently facing prosecution from various investigative agencies, including the Enforcement Directorate and Serious Fraud Investigation Organization (SFIO).

Ballooning of NPAs in the Indian banking system prompted the government and agencies to chase loan defaulters.

In the past two years, banks were forced to mark some of the big loan accounts including IL&FS, DHFL and Bhushan Power and Steel as NPAs.

“Once a lender declares an account as a fraud, it is required to set aside a provision to cover for the losses immediately. Banks, hence, prefer to declare an NPA as a fraud only after it has finished its provision requirement for the default account,” said an analyst on the condition of anonymity.

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