Lenders may ask RBI to ease fraud classification norms
MUMBAI: Banks are considering asking the Reserve Bank of India (RBI) to ease classification norms for fraud-hit loan accounts, amid a surge in such cases in India.
Banks currently set aside capital worth the full value of their dues from a fraud-hit loan account over a period of four quarters to cover the risk of defaults by the borrower. Lobby group Indian Banks’ Association is considering asking RBI to allow banks to classify only that part of the loan amount as fraud where fraudulent transactions have been detected.
“A forensic audit helps us identify transactions where fraud has taken place. So the question is whether only that portion should be declared as fraud or the entire account?” a senior banker aware of the matter said on condition of anonymity.
“If your nose is hurt, do you call your entire body sick? That’s the key question we are grappling with. We are planning to take up the issue among lenders next week.”
In the case of Dewan Housing Finance Corp. Ltd (DHFL), lenders have already segregated the bad loan book from the retail loan book as part of a resolution plan. DHFL had been looking to sell its project loan book worth ₹35,000 crore to Oaktree Capital, which had earlier bought assets worth ₹3,000 crore from the housing finance company.
“In DHFL’s case, we will be declaring only a part of the loan amount as fraud. Assets of NBFCs (non-banking financial companies) are largely loan book. Why should all our accounts including retail be declared as fraud? Not every loan asset is bad. It’s the wholesale loan book where there are inter-related party transactions, which has issues,” said Rajkiran Rai G, managing director and chief executive officer of Union Bank of India. “In case it is declared as fraud, we expect only 40% of the banking exposure worth ₹40,000 crore to be classified as fraud.”
A draft forensic report by accounting firm KPMG discovered that out of funds worth around ₹27,000 crore borrowed by DHFL from banks for on-lending to homebuyers, around ₹10,050 crore was invested in mutual funds.
The forensic report also found that about 25 group companies to which DHFL had lent a total of ₹14,000 crore had an average profit of about ₹1 lakh, raising suspicion that the mortgage lender might have diverted funds.