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False loan claims to be criminal offence: RBI

BS Banking Bureau in Mumbai

The Reserve Bank of India has directed banks to file criminal proceedings along with civil suits against companies that had furnished misleading information that influenced the credit decisions of banks.

The RBI has also advised banks to initiate criminal proceedings in the case of worthless guarantees and diversion of funds.

"Also, borrowers may be asked to declare on oath their borrowings, assets, and all other material facts, which can be the basis for criminal action in future, if details are not found to be correct," the RBI said.

These are some of the guidelines that the RBI has asked banks to place at their next board meeting to evolve a common minimum framework for tackling the problem of the deterioration in their non-performing assets.

The guidelines are based on the findings of a study of the Board for Financial Supervision of the RBI on the slippage on the NPA accounts front.

The RBI has also directed banks to crack down on negligent auditors.

It said: "In case any falsification of accounts on the part of the borrowers is observed by the banks and financial institutions, they should lodge a formal complaint against the auditors of the borrowers with the Institute of Chartered Accountants of India if it is observed that the auditors were negligent or deficient in conducting the audit to enable the ICAI to examine and fix accountability of the auditors."

To monitor the end use of funds, banks should award a separate mandate to the auditors if they desire a specific certification from the borrowers auditors on the diversion or siphoning of funds by the borrower, it said.

The RBI also asked banks to take recourse to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 to facilitate foreclosure of financial assets.

Banks have been directed to immediately initiate action under this ordinance in respect of totally unviable units.

The ordinance gives powers to banks and the financial institutions to take over the management of the defaulting borrowers businesses.

"With these special powers a strong message is being sent to the borrowers of banks / financial institutions across the country. Banks would do well to capitalise on this message in dealing with recalcitrant borrowers and willful defaulters," the RBI said.

Lenders should retain the right to exercise control over the ownership or management of the company while considering a plan for its revival.

The RBI said this can be done by ensuring that the promoters' shareholding is pledged to the lenders with a right to change ownership if certain covenants are not met.

The RBI has also asked banks to introduce a new asset category between standard and sub-standard for their own internal monitoring and follow up.

This asset category may be in line with the international practice of special mention assets used by FDIC, US, while keeping in view local requirements. An asset may be transferred to this category once the earliest signs of sickness are identified.

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