Fault Of The Bank

Bank liable for unsuccessful but attempted fraud by employee-By Jehangir Gai    Business Standard February 16, 2015
When a bank officer colludes with a party to commit a fraud, the victim is entitled to claim compensation from the bank for the loss caused. But what happens if the fraud is prevented and no loss is caused? In a landmark ruling, the National Consumer Disputes Redressal Commission has held the consumer would even then be entitled to claim compensation for mental anguish and harassment.

 Tara Singh had a motor cycle, financed by HDFC Bank. The loan dues were Rs 2,60,426, when he decided to sell the vehicle to Sakartar Singh for Rs 7,82,500, payable in three instalments - earnest money of Rs 2,60,426, first instalment of Rs 2,42,074 to be paid to HDFC Bank to clear the dues and obtain a no-objection certificate (NOC) and other documents from the bank; and final instalment of Rs 2,80,000.

 Sakartar wanted to cheat Tara and get the vehicle transferred to his name without paying for it. So Sakartar (the purchaser) impersonated Tara (the seller). The fraud took place with the help of Sandeep Singuria, an employee of the bank, who deliberately identified Sakartar as Tara. By such impersonation, Sakartar obtained the NOC and other relevant forms and documents from the bank, without even clearing the loan dues. Tara discovered the fraud when he approached the bank to complete the formalities. When he took up the matter, the bank tried to browbeat him by alleging he was attempting to sell the vehicle in contravention of the terms of the hypothecation agreement. The bank claimed that NOC had been properly issued. Yet, it sent a letter to the District Transport Officer not to transfer the vehicle as it was hypothecated.

Tara filed a complaint before the district consumer forum, which considered the rival contentions and held the bank guilty of deficiency in service. The bank was ordered to pay Tara a compensation of Rs 3 lakh, along with interest.

 The bank appealed to the Chandigarh State Commission, which observed the bank had worked in cahoots with Sakartar Singh. The bank was contradicting its own stand by initially claiming it had correctly issued the NOC and form for cancellation of the hypothecation but later doing a volte face by writing to the transport officer not to transfer the vehicle as it was hypothecated to the bank. However, since the vehicle had not been transferred, the state commission reduced the compensation to Rs 1 lakh, along with 12 per cent interest.

 The bank approached the National Commission, which observed the order of the state commission was perfectly justified as the conduct of the bank had caused Tara considerable harassment, mental agony, anger, sadness, frustration and anguish. The fraud was detected only due to Tara's own vigilance. The Commission also criticised the bank for trying to suppress facts and mislead it.

 Accordingly, by its order on January 16, a Bench of Justice Malik and Kantikar dismissed the bank's revision and with further costs of Rs 25,000 payable to Tara. The bank was granted liberty to recover the entire amount from its employee, Sandeep Singuria, who had played a pivotal role in the fraud. Thus, a bank is vicariously liable for the fraudulent act of its employee.

Asset quality problems mount for govt banks

Abhijit Lele/Mumbai

It was again a disappointing quarter for public sector banks which saw huge incremental slippages adversely affecting their profitability and capital position.

Barring State Bank of India, most public sector banks reported a sharp rise in bad loans in the quarter ended December, 2014. SBI saw a marginal increase in non-performing assets on a sequential basis, but compared to a year back, the level of both gross and net non-performing assets has fallen substantially

According to data compiled by Capitalline, bad loans of over Rs 24,000 crore were added to already heavy kitty of stressed assets, and public sector banks’ (PSBs) share in it was a staggering Rs 21,466 crore.

The government banks were hoping to consolidate their books with a stable asset quality, but that has now been pushed to the early part of FY16 as the last quarter (Q4) is expected to see banks continue their struggle with stressed assets. Banks are likely to see a spike in loan restructuring as the window for getting regulatory leeway in terms of lower provisioning closes on March 31 this year.

In the nine months of the current financial year, gross NPAs worth Rs 51,252 crore were added. Thus, outstanding portfolio of bad loans of listed banks was Rs 4, 85,000 crore by the end of December 2014, according to Capitaline data.

V Batra, senior vice-president – financial sector rating at ICRA said initial analysis indicates flow of NPAs was higher than expected. There were significant slippages from restructured loan book. This meant higher credit costs -- provisions for fresh slippages and hardening NPAs -- impacted profitability in the third quarter.

The sectors hit by slowdown and delays in payments have had a predominant share in bad loans. Infrastructure, construction, textile and iron and steel had higher contribution, banks executives said.

“Public sector banks are still not out of woods so far as asset quality is concerned. They are likely to face headwinds for at least two more quarters," said Saday Sinha, analyst with Kotal Securities.

Large public sector banks – Bank of Baroda, Punjab National Bank, Bank of India, Canara Bank – saw higher amount of slippages. Amongst mid-size banks, Chennai-based Indian Overseas Bank reported its second consecutive quarter of loss.

Vacuum at the top hit the recovery efforts of Bank of Baroda, which had managed to keep asset quality in check till the second quarter. But the bank wilted under pressure with its portfolio of gross NPAs growing to 3.85 per cent at the end of December 2014 from 3.32 per cent in September 2014. Fresh slippages jumped to Rs 3,000 crore from Rs 1,750 crore in the preceding quarter while incremental restructuring was close to Rs 1,600 crore compared to Rs 1,175 crore in the second quarter.

Ranjan Dhawan, executive director of BoB, said the asset quality situation was worse than expected. The pressure would continue to be felt in the fourth quarter as well.

Another public sector lender Union Bank of India reported a weak set of numbers in the third quarter, with its net profit declining by 13.3 per cent y-o-y owing to 39.6 per cent growth in provisions, while asset quality continued to deteriorate.

The bank continued to witness pressure on the asset quality front, as addition of stressed assets remained at elevated levels. Slippages came in at Rs 1,738 crore compared to Rs1,968 crore in Q2. The provision coverage ratio for the bank declined sequentially by 72 basis points to 57.3 per cent.

“Union Bank has been witnessing continued asset quality pressures for several quarters over the last few years, which has severely impacted its profitability," Angel Broking said in a note to its clients.

Another large government lender, Bank of India, reported rise in gross NPAs to 4.07 per cent in December 2014 from 3.54 per cent three months ago. The provision coverage ratio for NPAs stood at 56.62 per cent. In absolute terms addition was Rs 2,563 crore in three months.

Its chairperson and managing director V R Iyer said banks continue to face stress and only a broad-based recovery in economy can address the problem of bad loans.

Bank of India, whose domestic standard asset restructuring book is Rs 20,000 crore, has seen sectors like power, aviation and textile contributing the most.

Delhi-based lender Punjab National Bank faced a similar fate. Without a full time CEO at the helm since the end of October, its gross NPAs grew to 5.95 per cent in December from 5.65 per cent in September.

Bangalore-based Canara Bank, which is also without a full-time chief executive for over four months, did experience higher pressure during the third quarter. P S Rawat, its executive director said “we expected asset quality to stabilise by end of third quarter but that did not happen."

Reflecting continuing stress scenario at industry level, its gross NPAs stood at 3.35 per cent at end of December 2014, up from 2.92 per cent in September.

State Bank of India bucked the trend on asset quality due to its cautious approach in loan disbursement. The small and medium enterprise sector for example, which contributed a significant proportion of NPA last year, compelled SBI to adopt a ‘risk mitigated’ approach.

“With respect to SMEs, we have consolidated and changed our entire product suite; all the products we have brought in are risk-mitigated ones. Frankly, I thought this was the right time to consolidate. So, we have held back and did not go out aggressively," Arundhati Bhattacharya, chairman, SBI said.

The bank was able to restrict fresh slippages to Rs 7,043 crore, while standard asset restructuring stood at Rs 4,092 crore.

SBI said its strategy of lower appetite for risks amid a slowing economy and high interest rates would be reflected in future numbers.

While banks will beef up recovery efforts in Q4, banks are still wary of saying that trying times are behind them.

Even State Bank of India, is cautious about the days ahead. Bhattacharya said “I am loath to say pain is over. Have to wait for quarter or two."

Rating agency ICRA has indicated that the gross NPAs at system level would breach its earlier estimate of 4.2 per cent by March 2015. It could be around 4.3 per cent

Fresh tax evasion claims against HSBC India
HSBC’s Indian banking unit is at the heart of fresh revelations around tax evasion, days after a global expose showed tax-dodging through accounts in the British major’s Swiss banking unit, said a media report on Sunday.It is alleged that representatives of HSBC India, which has employees based in the US, assured customers that details of their accounts would not be reported to tax officials.
The latest revelations came even as the bank issued full-page advertisements in British newspapers as public apology after reports that its Swiss banking arm had helped some wealthy clients avoid tax.

According to court documents seen by “The Sunday Times”, employees in one case allegedly advised a New Jersey Indian-origin businessman to transfer funds in tranches of under £6,500 to “stay below the radar”.

Court documents reveal that HSBC India has been accused of helping American citizens of Indian origin to avoid tax, said the report. The US justice department issued a summons against the bank in April 2011 to reveal details of clients. It was claimed that the bank promoted its services on the basis of keeping information secret from tax authorities.

“Prospective clients were told that as a foreign bank, HSBC India would not disclose the accounts to the IRS (Inland Revenue Service),” said the government in court filings.
“The IRS has learnt that thousands of US taxpayers with accounts in HSBC India may have failed to disclose those accounts, and report income on them, as required by law,” it said.
http://www.deccanherald.com/content/459969/fresh-tax-evasion-claims-against.html