Banks to tighten lending process for big borrowers

New Delhi :Public sector banks are reinforcing their risk-management mechanisms following the PNB scam and have confirmed that their LoU-related transactions are properly assessed, genuine and accounted for except those already reported by PNB.
To dissuade errant promoters, public sector banks are also tightening their credit sanction procedures and multiple banking arrangements shall be discouraged for borrowers having more than Rs 250 crore exposure from the banking sector.
In addition, equity has to be brought in by the promoter upfront. Quality of equity shall also be assessed by verifying its loss-absorption capacity.
Jewellery designer Nirav Modi and his uncle Mehul Choksi in connivance with certain bank officials allegedly cheated PNB of Rs 12,968 crore through fraudulent Letters of Undertaking (LoUs).
In a joint initiative, public sector banks have drawn up action plans to strengthen the controls in the areas of trade finance, SWIFT, credit risk, operational risk besides cyber and IT risk.
The PSBs organised a three-day workshop of executive directors, chief risk officers and chief technical officers of all public sector banks with a view to ascertaining the prevailing risk management practices among them and arrive at a common understanding with regard to the best practices.
The PSU banks have pointed out that the major incident that took place recently in one of the branches is one of its kind in about 5,000 branches, dealing in foreign exchange in the entire banking system in India.
Further controls have also now been put in place that includes additional layer of approval for all outward swift messages, integration of SWIFT with CBS latest by April 30, besides time restrictions for such transactions i.e. between 9 am and 8 pm only.
To tighten the post-sanction procedure, cash management facility will be with one of the banks within the consortium and information should be shared with other banks. Stocks and receivables audit will be done at regular intervals and system-based early warning signals (EWS) to be generated for early detection of stress.
In addition, there will be validation of turnover using customers’ bank statements which would require analysis of transactions with lending bank as well as other banks.