Stung by mounting bad loans and growing instances of bogus paperwork, authorities have now made bank officials directly accountable for assessing borrowers’ documents as part of a broader move to fortify loan appraisal processes.
It has now been made mandatory for public-sector bank officials to give a written confirmation that they have verified and authenticated borrowers’ documents before signing off on a loan application.
The move comes after the Central Vigilance Commission (CVC), India’s anti-graft watchdog, found evidence of loans granted to companies on fake documents, including balance sheets and profit and loss accounts.
“Banks were accepting documents without proper validation,” chief vigilance commissioner KV Chowdary told HT.
“The situation is such that no bank official owns up on the documents that have been submitted and accepted for approval of loans,” he said.
“Nor is there any prescription in banks that whenever a balance sheet is submitted, it should be verified with respect to the person who signed it or in case of a company, referred to the ministry of corporate affairs,” he added.
While in some cases balance sheets have been found to be certified by non-existent chartered accountants, in others companies were found to have presented documents to banks different from the ones certified by the auditors.
Banks find it difficult to recover funds from companies that default on loans taken on forged documents.
There is rising suspicion about the alleged involvement of bank officials in allowing such acts of forgery to get past the existing due-diligence system. The move to make them accountable for verifying loan-related paperwork is primarily aimed at plugging this gap.
“In many cases, action is in progress against errant bank officials either from the point of view of culpability of the bank officials who may have facilitated these loans incorrectly or for failure to take action,” Chowdary said.
India’s banks are grappling with mounting bad loans, partly because of stalled projects that have hurt companies’ earnings and also because of bogus paperwork of some companies that inflated their ability to repay.
Bad loans or non-performing assets had topped R3 lakh crore as on December 2014, of which R2.62 lakh crore belonged solely to nationalised banks.