Rbi For Paring Idbi Panel

The Reserve Bank of India (RBI) is in favour of downsizing the executive committee of the Industrial Development Bank of India (IDBI). The move is expected to enable the committee to sharply focus on the day-to-day affairs of the institution.

According to an RBI report, a slimmer executive committee will be able to focus on the day-to-day activities of IDBI in a better way, as the board can concentrate on policy matters. At IDBI, the members of the board are also the members of the executive committee.

The report was prepared by the apex bank after conducting an inspection of the institution's functioning between October 9 and December 13, 2000.

Coming down heavily on IDBI's style of functioning, the inspection report said: "There was no review note on director-related overdue advances. Review notes on several important aspects of the functioning of the bank, such as venture capital, debenture trusteeship, etc were never submitted. It is desirable to keep the board appraised on risk management, problem accounts, status of various larger projects, large group accounts, etc. The direction of the board in certain cases had not yet been implemented."

The RBI inspection team visited the IDBI headquarters, two zonal offices and seven branches for preparing the report under Section 45(N) of the RBI Act, 1934.

The report also found faults with IDBI's treasury operations. "There was no separation of duties/ demarcation between forex and money market dealers. While the system could not generate the list of unconfirmed contracts as on March 31, 2000, there was no system of putting up such cases to the top management," it said.

The report pointed out that there was no contingency plan in the event of breakdown to cover operational risk. The institution has not prescribed any cash margin requirement for booking forward contracts despite incurring losses. "The forex transactions were accounted for in the books of accounts of IDBI only on a monthly basis and the liability on account of forward contracts and letter of credits issued were not shown as contingent liability in the balance sheet of the bank and no risk weight was given for the same for calculating risk-weighted assets," the inspection report said.

The RBI team was also unhappy with the internal audit system of the institution. According to the report, no manual had been prepared and all financial and operational audit reports were not put up to the audit committee of the board.

"The internal and concurrent audit reports were discussed in the in-house audit committee only on a sample basis," it said.

Among other things, the inspection team found IBDI bloating its capital adequacy ratio. Against the reported capital adequacy ratio (CAR) of 14.52 per cent, the RBI inspection team's estimate of CAR was to the tune of 13.24 per cent. This was due to estimation of additional provisioning of Rs 484.71 crore towards additional loan losses, unrealised income on non-performing assets taken into income (Rs 166.18 crore), additional provisioning required for investments (Rs 88.24 crore), etc.

The RBI team also discovered huge asset-liability mismatches in medium and short terms.