Banks order forensic audit of accounts at first hint of trouble

Demand for staff's anti-fraud training increases

Forensic audit firms are seeing a surge in demand from banks to probe accounts that have not defaulted but might have started to show some early signs of trouble.

Lenders started making this request in the face of pressure from bad loans. Forensic auditors said banks usually use these services once a company defaults on repayment. But, now, lenders are not waiting for a default to happen and are on the vigil if they sense trouble in the offing.

Read more from our special coverage on "NPA"

• Woes for Indians banks to continue in FY17: S&P
• Banks see a plunge in advance tax payments as NPAs bite
• Banks in Odisha stare at Rs 11,000 crore NPA in crop loans by March end

Vikram Babbar, executive director, Fraud Investigation & Dispute Services, EY, said banks were now following a proactive approach and would be looking at using forensic audits if they suspect any trouble in the account.

Analysts said sometimes a promoter would not have defaulted on a loan to a particular lender but might have had trouble in meeting a repayment deadline at other banks. This might raise an alarm. Bankers have their ear to the grapevine to catch news of companies being in trouble or of a possible fund diversion.

“We also do asset-tracing for banks. But sometimes by the time we get there, it is too late,” said Reshmi Khurana, managing director of Kroll India. “So what needs to happen more often is a systematic monitoring of accounts that are in distress and not wait for them to get into corporate debt restructuring. And, we have been seeing that banks have started coming on to us early to ask for audit rights of a company and gain additional information which can provide leverage in times of negotiation with the promoters. Sometimes they are called before the default.”

In fact, the Finance Standing Committee of Parliament had recently called for an immediate forensic audit of all restructured loans that had turned into bad debts. This comes at a time when the stressed assets in the system were believed to be about 11.24 per cent of advances at the end of the quarter ended September.

Apart from this, banks have also become cautious in internally identifying accounts that might need attention. As a result, audit firms have seen an increase in demand for training purposes as well.

“The demand for anti-fraud training by banks of frontline staff has also increased. With the Reserve Bank of India (RBI) insisting on banks cleaning up the books, there has been a surge in requests for forensic audits. In the last quarter, these requests have increased by almost five times,” added Babbar.

A systemic review carried out by RBI, which had asked banks to recognise certain assets in the December- and March-ended quarters of this financial year, had led to an increase in bad loans. The central bank had also prodded banks to step up the fight in tackling the rising non-performing assets’ issue.