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By--- Danendra Jain
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Friday, December 13, 2013
RBI Will Conduct Special Audit Of Allahabad Bank
To check for potential NPAs, RBI orders audit of Allahabad Bank
Close on the heels of directing a forensic audit on United Bank of India, the RBI has initiated a special audit of another Kolkata-based lender, Allahabad Bank.
The banking regulator has notified Allahabad Bank about the audit to assess the potential non-performing assets and ‘special mention accounts’, finance ministry sources told FE. The RBI’s focus on ‘special mention accounts’ of banks is part of its efforts to ensure that the lenders upgrade their Early Warning Systems so that timely action can be taken before more accounts slip into the NPA category, the sources added.
They said one of the objectives of the forensic audit being carried out on United Bank of India is to find out whether any criminal intent on the part of the bank officials had led to a rise in bad loans, and to present such evidence in a court of law.
The sources, however, added that the books of Allahabad Bank have not reached as precarious a stage as United Bank of India. The special audit at Allahabad Bank would be conducted by Ernst & Young, while Deloitte is carrying out the forensic audit on United Bank of India and is expected to submit its report by this month-end.
When contacted, Shubhalakshmi Panse, chairperson and managing director of Allahabad Bank, confirmed to FE that a thematic audit has been initiated by RBI and will be conducted by Ernst & Young. “I have been told they will look at the book of accounts and the credit portfolio,” she said.
Allahabad Bank’s net profit for the quarter ended September 30 rose to R276 crore from R234 crore in the same period last year. The bank’s gross NPA stood at 4.94% of gross advances in the July-September this year. In the corresponding quarter a year ago, the figure was 2.95%.
The introduction of a separate asset category of ‘special mention accounts’ and asking lenders to give their full attention to such accounts at the earliest stage to avoid bad loans is a practice followed by banking regulators in other countries — such as the US and Singapore — also.
However, the problem is that since the special mention accounts do not fall under the NPA category, they do not need provisioning and do not promptly come to the notice of RBI, the sources said, adding that the RBI now wants the banks to be equally careful about such accounts as well.
RBI governor Raghuram Rajan has made the resolution of distress assets a priority area as gross non-performing assets of 40 listed banks grew 37% year-on-year to R2.29 lakh crore at the end of September. Of the 40 lenders, 10 banks have gross bad loans above 5% of their total lending. Eight of these 10 banks are run by the government, including the State Bank of India, Punjab National Bank, UCO Bank and Central Bank of India.
Raghuram Rajan-headed FSDC panel expresses concern over bad loans--Financial Express
The Sub Committee of the Financial Stability and Development Council (FSDC), headed by RBI Governor Raghuram Rajan, today expressed concern over the rising bad loans of banks.
The Reserve Bank will shortly bring out draft guidelines to address issues relating to asset quality, the central bank said after the 11th meeting of the FSDC Sub Committee.
"Other major issues taken up in the meeting included concerns relating to the deteriorating asset quality of banks," an RBI statement said.
The Sub Committee discussed the recent trends in the current account deficit and relative stability in the foreign exchange markets on account of measures initiated by the regulators and the government and also the improvement in the external environment, it added.
The FSDC was set up to strengthen and institutionalise the mechanism of financial stability and development.
Top 30 loan defaulters of public sector banks (PSBs) account for more than one-third of total gross non-performing assets of state-run lenders. The gross non-performing assets (GNPA) amount these accounts of public sector banks (PSBs) stood at Rs 72,174 crore, while for all banks it was Rs 91,667 crore at the end of September, 2013.
To improve the health of the financial sector and to improve asset quality of banks, besides preventing slippages, RBI from time to time issues instructions of banks.
The RBI statement further said the Sub Committee decided on a coordinated approach to the implementation of some non-legislative recommendations of the Financial Sector Legislative Reforms Council (FSLRC) within a defined timeframe.
Also, the desirability of developing a common repository of information on financial assets was discussed.
Cobrapost sting: NABARD chief gives clean chit to co-operative banks
Amid allegations of co-operative banks being used as conduits for money laundering, NABARD, which jointly regulates such lenders, has said that it has found no shortcoming pointing towards any such activity.
"Every year we do an inspection and we have not found anything like that," National Bank for Agriculture and Rural Development's (NABARD) chairman Prakash Bakshi said over the weekend, when asked about the recent controversy over money laundering.
A probe launched by Reserve Bank of India following allegations of non-compliance with anti-money laundering measures and know your customer (KYC) norms by top private banks has reportedly found that cooperative banks are used as conduits.
Not having the entire bouquet of service offerings, the cooperative banks tie-up with scheduled commercial banks to expand their reach. Co-operative banks can accept cash under Rs 50,000 from customers (the limit at which reporting to tax authorities sets in). They usually earn commission from larger banks for providing services.
When asked about the misuse of the system and if this amounts to regulatory arbitrage, Bakshi said, "It is the same regulation for everybody. Banking Regulation Act is same for everybody."
Online portal Cobrapost had in March made public a sting operation purportedly showing some executives at three top private banks -- ICICI Bank, HDFC Bank and Axis Bank – allegedly agreeing to receive unverified sums of cash and put
them in their investment schemes and benami accounts in violation of anti-money laundering laws.
Earlier this month, it had followed up with a similar operation, showing executives at over 20 financial institutions, including State Bank of India and Life Insurance Corporation of India, offering similar services.
The Reserve Bank has maintained that no transaction has happened while the sting also does not point to "money laundering".
RBI Governor D Subbarao has also said: "RBI is not directly involved... even banks are not directly responsible. They are not expected to inquire about the source of income. It is for government and tax authorities to check money laundering."
Bakshi said Nabard, which disbursed a refinance of Rs 65,000 crore on short-term agri loans last fiscal, is targetting to take the same number up to Rs 80,000 crore in
the current fiscal.
Meanwhile, in a first, NABARD, in association with the National Payments Corporation of India, launched the maiden Kisan Credit Card (KCC) Debit Card for the customers of the Raigad District Cooperative Bank in the district headquarters
of Alibaug over the weekend.Under the scheme, the maximum loan amount for which a beneficiary farmer is eligible will be loaded on the card and he can withdraw the money as per his requirements. Interest applicable thereof, will have to be serviced.