Investigation Process for Company Frauds with PSU Banks: Inputs Sought

In multiple circles, we have received posts from members which suggest that the CBI is taking a long time in acting on complaints of frauds in excess of 100 crores filed by public sector banks. Per the information submitted, it is taking up to a 1-2 years for the complaint to FIR process. If this processes is expedited, it will lead to faster systemic cleanup and eventually faster fresh loan disbursal which for the large part is at a stand still. We seek your inputs on what can be done to expedite the slow process if you are familiar with this subject. If you are not, but have additional information about this, kindly share the same.

Below are the key root causes and solutions as identified by circle members in the past to address Willful Defaults in Indian industry. Kindly review and share any additional specific inputs you have in this area.

We will soon be compiling this and submitting to key stakeholders within the Government.

Wilful Defaults - Solutions Identified by Citizens

1.Big Corporate Loans granting process must be re-engineered through process/systems upgrade, an eminent civil society member advisory board so political pressures cannot influence decisions
2.Corporate loan applications should be scrutinized properly with detailed back end checks via PAN/Income Tax/EPF/ historical banking transactions
3.PSU bank staff found to be indulging in corrupt practices should immediately be dismissed from their jobs
4.The legal formalities in case of a corporate loan default should be tightened and made more strict
5.In case of a property auction, the defaulter should be barred from buying his own property again
6.Corporates found to have used forged documents in a loan approval from the bank should be blacklisted
7.The coordination between the loan approval and loan recovery department should be improved
8.Officers responsible for approving corporate loans should be well qualified and should be acquainted with the working of businesses models
9.The RBI should lay down a strict time limit for NPA recovery
10.Large loans should be scrutinized by independent auditors
11.The clubbing provision under central excise law is very meaningful.it has to be applied so that such NPA accounts do not misuse banks funds and circulate them for their fraudulent purposes
12.Wilful defaulters should not be allowed to contest in elections
13.Special courts could be constituted for NPA recovery.

Wilful Defaults – Root Causes

1.Banks do not scrutinize big names enough before giving loans
2.Political leaders recommend sanction of loans irrespective of the firm's inability to repay because of cash/kind favours received by them
3.PSU Bank staff is influenced in many ways including power, bribes, promotions, favours in kind, etc to sanction the loan
4.The rules for passing loans to corporate bodies is different from those for an individual
5.Political parties have a lion's share in the loans sanctioned to various corporate houses in the country through declaration of sick industry
6.Borrowers are very clever/confident and have no fear of being caught
7.The present slow legal formalities in case of a corporate loan default is a long drawn process
8.Even if the defaulter’s property is auctioned, he can still purchase the same in benami again, at a rock bottom price
9.The bank loan departments overlook important facts while approving loans just so that their targets are met
10.Forged documents are used to apply for loans
11.There is a nexus between officers and borrower
12.No single point of contact for Loan and Recovery; they are separate departments in banks. more  

View all 108 comments Below 108 comments
For small loans, there is pressure on Banks to sanction and meet the target. Most of such small loans goes to overdue and ultimately renewed or rephased. Finally, the loans goes bad and written off from Banks profits. Alternatively, big loans are sanctioned with political influence and most of the loans in the short period or long period also goes bads. There is no rule to recover the loan without goes to the court, where it takes years to get the order.
As a whole, the public money is always at risk due to government policies. more  
Third party audit must be made mandatory on every quarter. A fast tribunal central wise must be formed in each state which must review cases against central and co-operative and state financial related corruption issue and it must be resolved within a stipulated/defined time line.
Those involved in corruption must be terminated immediately and amount equal to loss of government money must be taken from the responsible officer/authority at any cost. more  
Defaulters of 2 consecutive Installments shall be tagged for Regular Watch and Controls. Working Capital Accounts and Short Term Loans shall be QUARTERLY Scrutinized and tagged for Regular Watch and Controls.

Accounts of defaulters of 3 Installments AND OR REPEAT OF 2 SHALL BE TAGGED FOR Recovery Proceedings more  
1) There should not be any political interference-- The political pressure to sanction loans to notorious and dubious entities without any detailed verification is one of the main causes for bank loans to turn into bad debts. The moment CBI comes to know about political connect, investigation will take a different route and all efforts would be made to bury the case. CBI should be allowed to work as an INDEPENDENT BODY.
HONEST OFFICERS, even if they are only one or two, they should be given enough powers to take INDEPENDENT DECISIONS instead of making them wait for INSTRUCTIONS FROM TOP/ TOPMOST/UNKNOWN FORCES, ETC........
2) A time frame of 100 days should be set to complete the case from start to end. No need to worry about Media reactions..........
3) Board members of defaulted companies should not be allowed to travel abroad till case is completed
4) Bank clearance certificates should be made mandatory for all who contest elections
5) A dock audit should be performed for loans in excess of certain limits by an external agency (legally authorized) before sanction of such loans. more  
The Bank's Board of Director should be completely shielded from the Political clout first and then they should be allowed to professionally manage the functioning of bank with variable apys linked to performance of the Bank more  
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