Banks Rip Off Rs 350 Crore From Rbi Arm

Central bank uncovers large-scale misuse of insurance cover facility on loans from Deposit Insurance and Credit Guarantee Corporation

The Reserve Bank of India (RBI) has detected large-scale misuse of insurance cover provided by an RBI arm, the Deposit Insurance and Credit Guarantee Corporation (DICGC), to the Indian banking sector.

A special task force of the RBI set up two months ago to probe irregular drawals from the DICGC through ineligible claims by banks has unearthed evidence which indicates that the irregularities may be to the tune of Rs 300-350 crore.

An officer on the task force, however, said: We do not rule out the figure touching a higher level at the end of this elaborate exercise.

We expect to recover from banks at least Rs 300 to 350 crore from this exercise since initial findings show large-scale misuse of the scheme, said an highly placed RBI official.

He told Business Standard: In the case of just one nationalised bank in Chennai, we have been able to arrive at a sum of Rs 60 crore which was drawn by the bank from the DICGC over a period of time in an irregular manner.

The task force has completed its probe into such deals by banks in Chennai, Bangalore, Mangalore, Manipal and Calcutta. The team is expected to complete its investigations in the rest of the centres in another eight to 10 weeks and, thereafter, submit a detailed bank-wise report to the RBI.

Under the DICGC norms, 60 per cent of the advance amount of banks small loans are eligible to get a health code of loss asset from the Corporation. According to the task force, some banks have taken advantage of this and have continued to claim and draw insurance cover on small loans from the DICGC after showing the particular account as a loss asset.

Later, the banks despite writing off the particular account in their balance sheets pursued recovery processes at the branch level. The recovered money was, however, never shown to DICGC. This resulted in the banks gaining both ways while the DICGC suffered due to the irregular claims.

The RBI was alerted to the irregularities following the manner in which banks have been writing off small loans in the last two years.

According to RBI sources, a sample survey threw up the possibility of DICGC schemes being misused by banks. A task force was, thereafter, set up to conduct an indepth study into the irregularities across the country.

The DICGC was set up three decades ago following a private bank in Kerala showing signs of a collapse. At the behest of the Union finance Ministry and to infuse an element of security in the minds of bank depositors, the RBI set up the corporation to provide insurance cover to deposits.