Be on guard for subversion of loan norms: FinMin to bankers

The Finance Ministry today cautioned banks to be on guard for subversion of lending processes by some "undesirable parties", as in the case of the recent bribes-for-loans scandal, in the context of the "burgeoning" non-performing assets of some lenders.

Lending and financial institutions should carefully scrutinise loan-seekers and evaluate their proposals more stringently, with immaculate documentation and periodic inspections and reviews, Financial Services Secretary R Gopalan said at the annual Bancon banking conference here today in a video message.

In the recent past, banks have not been careful enough, which has led to "stray incidences of burgeoning of the NPA portfolios", he said. Gopalan warned that, "We also need to be on guard against the processes being subverted by undesirable business parties, as has come to light recently in some places."

Last month, the Central Bureau of Investigation unearthed a racket in which the top management of public sector lenders allegedly accepted bribes from middlemen to clear the loan proposals of some realty companies.

Eight people, including LIC Housing Finance Chief Executive Ramachandran Nair and senior officials from Bank of India and Central Bank of India, were arrested in connection with the scam.

"You should ensure that all procedures and due diligences consistent with board-approved guidelines are adhered to while approving loans," Gopalan said, calling upon banks to strengthen their NPA monitoring and management systems to ensure that appropriate action was taken in case of payment defaults by borrowers.

The need, Gopalan said, is to go back to "basic banking" by extending their reach to the unbanked sections of the country, in line with the goal of financial inclusion.