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PMO meet to check loan fraud

Amid a rising number of frauds and loan defaults in banking system, the Prime Minister's Office (PMO) has called a meeting of finance ministry officials on Thursday to firm up measures to tackle such menaces.

The Prime Minister's Office in a meeting with top finance ministry officials on 14 May will review steps to check loan frauds, an official familiar with the matter said. The finance ministry has already collected a comprehensive data on wilful defaulters of public sector banks last month, people familiar with the matter said. They further said that instances of corporate frauds were on increase in the recent past, leading to a rise in bad loans. As per Reserve bank of India (RBI) data, gross non-performing assets (NPAs) of PSU (public sector unit) banks have gone up to Rs.2,60,531 crore as on December 2014.

The top 30 defaulters are sitting on bad loans of Rs.95,122 crore, which is more than one-third of the entire non-performing assets of public sector banks as on December 2014. In terms of percentage, it amounts to 36.5%. The total number of NPA borrowers having Rs.10 crore and above at the end of September 2014 stood at 2,897 with outstanding amount of Rs.1,60,164 crore. Gross NPAs of public sector banks rose sharply to 5.33% in September 2014 as compared to 4.72% of total advances at the end of March 2014.

In order to check instances of fraud, the RBI had last week put in place a new framework to check loan frauds including by way of early warning signals at banks and red flagging of accounts, while swindlers will have no access to further banking finance. Besides, the central bank would set up a central fraud registry that can be accessed by all banks to identify borrowers having committed frauds with any bank in the past. The CBI and the Central Economic Intelligence Bureau (CEIB) will also share their databases with banks. The concept of a red flagged account (RFA) is being introduced in the current framework as an important step in fraud risk control, the RBI said in guidelines for banks to deal with loan frauds.

"An RFA is one where a suspicion of fraudulent activity is thrown up by the presence of one or more early warning signals (EWS). These signals in a loan account should immediately put the bank on alert regarding a weakness or wrong doing which may ultimately turn out to be fraudulent," the RBI had said statement. No restructuring or grant of additional facilities may be made in the case of RFA or fraud accounts, it said.

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