SBI to amp up early warning system to detect stress, fraud
MUMBAI: State Bank of India (SBI), the country’s largest lender, is looking to upgrade its early warning system to preempt loan defaults, fund diversions and frauds by tapping external data like rating revisions, stark share price movements and even media reports, showed documents reviewed by Mint.
The bank believes that, while diverting funds through related parties, trusts, and foreign subsidiaries is among the chief causes of asset quality challenges and frauds, lenders get conclusive information only after a forensic audit. It wants a data service provider to figure out ways to flag fraudulent transactions and potential defaults even before detailed audits show a public tender document.
The data provider, SBI said, has to provide alerts on breaches of a set of 199 early warning signals from external sources. These include alerts on changes in ratings or outlook; share prices hitting a 52-weeklow during any particular week; promoter holding falling below 26%; decline in the number of employees on a monthly basis as per data from the Employees’ Provident Fund Organization (EPFO); negative news of raids by income tax, sales tax, central excise duty officials and imposition of penalties by government agencies.
In 2021-22, SBI reported 4,192 frauds worth ₹7,101 crore, setting aside an equal sum of money as provisions against it. In 2020-21, it reported 5,724 frauds of ₹10,086 crore, its FY22 annual report showed. “(The) bank possesses data like Central Repository of Information on Large Credits (Crilc) and credit information company (CIC), which cannot be shared with the service providers in terms of current regulatory guidelines. How can the bank leverage this data to strengthen the early warning signal system in collaboration with the service provider?,” asked SBI in one of the documents cited above.
The Crilc database is used by banks and other financial institutions to share, among themselves and with RBI, the classification status of borrowers. Concerned over the rising incidence of large borrowers attempting to defraud banks, RBI, in 2015, released a framework for the prevention and early detection of such cases.