The Telegraph
Since 1st March, 1999
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RBI alert on cooked-up books

Calcutta, Feb. 16: The Reserve Bank of India (RBI) has come down heavily on companies that furnish misleading numbers to get loans from banks. It has directed banks and financial institutions (FIs) in a recent circular to lodge formal complaints with Institute of Chartered Accountants of India (ICAI) against firms which have been dishing out cooked-up books.

“We have asked banks and FIs to lodge formal complaints with ICAI about falsification of accounts by borrowers in cases where auditors have been observed to be negligent or deficient in audit,” RBI officials said.

In addition, lenders have been advised to consider special investigative audit of all financial transactions, business deals and books of accounts. Banks have also been exhorted to conduct a proper techno-economic feasibility study before giving away loans.

The entire exercise is aimed at putting a check on the rising non-performing assets (NPAs) that have choked lenders. So, bankers are already smiling. “The move will foster better credit management and keep a leash on NPAs,” senior United Bank of India officials said.

There is a sense in the RBI that banks have, in the past, not made a careful study of accounts before deciding to lend. “This has created the problem of NPAs,” they said.

However, companies feel the new norm will hold back banks from sanctioning big-ticket loans. “Banks have already stopped giving large credit to firms amid fears of a deepening bad-loan mess. The new guideline will tighten access to credit. There will be a bias towards giving more retail loans, where recovery is assured.”

Though the RBI is satisfied with efforts of public sector banks in recovering the sticky assets, it has said the provisioning for NPAs of public sector banks in fiscal year ended March 31, 2002 was only 42.5 per cent of gross NPAs.

This level of hedging is considered low when compared with international standards, which are often as high as 140 per cent. Many see full provisioning against impaired assets as a priority corporate goal.

The RBI’s report on Trends and Progress in India 2001-02 puts gross NPAs of banks at a staggering Rs 70,000 crore.

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