Swinging into action on the ‘bribe-for-bank loan scam', the Finance Minister, Mr Pranab Mukherjee directed all public sector banks, financial institutions and insurance firms to take a look at their exposures to companies mentioned in the Central Bureau of Investigation's First Information Report filed on 24th November.
These institutions have been asked to carry out an independent evaluation on the asset quality, documentation and compliance of other prudential requirements in the companies under the CBI scanner.
NPA monitoring
Moreover, the Finance Minister has asked the board of directors of the banks and financial institutions to undertake a fresh assessment of non-performing assets (NPAs). Mr Mukherjee has advised them to strengthen the NPA monitoring and management in order to ensure that advance action is taken to identify incipient sickness.
All institutions have been asked to ensure that procedures and due diligence consistent with board-approved guidelines are adhered to while approving the loans, he said.
The Finance Minister convened a meeting of the officers of the Department of Financial Services (DFS) under his Ministry on the issue a day after the CBI unearthed a real estate lending scam involving senior officials of leading public sector banks and financial institutions. During the review, the DFS said that the initial assessment had indicated that these were isolated instances of illegal gratification and that asset quality in these cases has not been impaired. He also asked the lenders to take appropriate action against those individuals (who have been arrested on graft charges) according to established procedures.
The Finance Minister also asked the DFS, regulatory authorities and institutions to take immediate action “to review and strengthen the procedures further”. Companies mentioned as getting loans in the CBI's first information report include Lavasa, DB Realty, Vatika, Krishna Group, Suzlon, JP Group, MBD, Gold Sukh project and Emaar MGF. Loans to these companies mostly in the realty sector were sanctioned by the banks in 2009.
‘Banks diligent'
Meanwhile, the PSBs maintained that their loan sanctioning process was rigorous. The Bank of India Chairman and MD, Mr Alok Misra, pointed out that large corporate loan proposals undergo scrutiny at several levels before being put up to the managing committee for final sanction.
The loan sanctioning process cannot be undermined by the misconduct of one or two officials, he added. The Central Bank of India Chief General Manager, Mr K.A. Somayajulu, said all prudential limits with regard to sectoral, group and company exposure limits have been adhered to by the bank. BoI's exposure to commercial real estate is 3.2 per cent of total assets, while that of Central Bank of India is below 6 per cent of the total assets.
Individual faults: Realtors
Similarly, real estate players also shrugged off market perceptions that the scandal could impact credit flow.
“These are isolated instances of individual wrongdoings. If at all, there may just be a short-term blip but one must remember that loan flow to the real estate sector is driven by broad macro-economic factors and other issues,” the DLF Group Chief Financial Officer, Mr Ashok Tyagi, said. The Parsvnath Chairman, Mr Pradeep Jain, felt that misconduct by an individual cannot be held against the entire system. However, industry watchers such as Mr Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, warned that there could be repercussion in terms of increased caution by banks while lending to developers.
“Borrowing will become more expensive and the process involved in getting it lengthier as banks increase their vigilance levels. However, the Indian banking system's robustness has never made it very easy to obtain debt before,” Mr Puri said.
Meanwhile, the Reserve Bank of India is understood to have sought details of loans sanctioned by banks to companies mentioned in the CBI FIR.
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