The government has asked public sector banks and financial institutions to submit a comprehensive report on loans sanctioned to firms named in the housing loan bribery scam, along with credit reports generated internally and those provided by rating firms.
Internal audit reports will contain comments from the credit risk department of the bank, identifying concerns over a particular loan, which will allow the government to see if funds were sanctioned against recommendations.
“We have asked public sector banks to examine the documentation of these loans in detail and also their asset quality and get back to us,” said a senior finance ministry official.
The Central Bureau of Investigation (CBI) is probing 21 companies named in the bribe-for loans scam that has rattled the financial markets even as government is embroiled in charges of corruption in the allocation of telecom licences.
Banks have confirmed receiving a demand for a detailed report. “We will submit all details, which have been asked for,” said an official with the Central Bank of India, adding that the bank was not too worried over its exposure to any of the firms, allegedly involved in the scam.
The Central Bank is among the lenders that have figured in the scam. Others are LIC Housing Finance , Punjab National Bank , and Bank of India . Any financial institution has to provide details such as promoter’s experience, business and industry risk, financial risk, internal ratings concern and profitability projections in its assessment report.
“The bank’s previous exposure to the company, sector and risk associated with the project are dully notified in that,” the Central Bank official said, requesting anonymity.
Explaining the sanctioning process, a senior official of State Bank of India said the possibility of these loans turning into non-performing assets is low. “We also seek information from RBI and CIBIL if the company or its directors figure in their list of defaulters or willful defaulters,” he said. The bank boards go against the report only in rare cases and that requires borrower to pledge his personal security, he explained.
The internal reports of banks have to ascertain if the borrowers have a tainted history and also ensure if any director of the bank or their relatives hold any substantial interest in the borrowing entity.
So far, the CBI has arrested eight bank executives for taking bribe to sanction loans to companies. The companies, whose names have figured in connection with the scam, include many realty firms such as DB Realty, Oberoi Realty and Jaiprakash Associates. Others are Suzlon Energy , Religare Enterprises , JSW Power and Jaiprakash Power.
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