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SC's fraud-tagging ruling may lengthen process for banks: UCO Bank MD & CEO

Soma Sankara Prasad believes the process of identifying an account as fradulent would be akin to that of determining wilful defaulters

Supreme Court

Ishita Ayan Dutt Kolkata

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The Supreme Court verdict on fraud-tagging is likely to lengthen the process for banks, Soma Sankara Prasad, managing director and chief executive officer, UCO Bank, said on Tuesday.

The apex court said, in an order on Monday, that a borrower should be allowed to be heard before a bank declared his account 'fraudulent'.

“If we have to give a notice to the borrower, listen to him and then take a call, it will only lengthen the process for us,” Prasad said, adding that it would soon be the same as the process in determining wilful defaulters.

The processes followed by banks for tagging accounts as fraudulent and as wilful defaulters were different. “But now they will almost become the same, as we would have to call the borrower or his representative and hear him out before declaring his account as fraud,” Prasad said.

He went on to explain that in the case of wilful defaults, there is a committee that identifies such defaulters, listens to them and takes a call. “Ultimately, there is a review authority also…it is put up to the board. And the board either confirms it (the wilful default status) or uses its discretion not to declare the defaulter as wilful after looking at the material,” he said.

Accounts were identified as fraudulent under the Reserve Bank of India’s Master Directions circular in 2016, which allowed banks to classify an account as such without giving the borrower a chance to be heard.

The circular was challenged in the Telangana High Court, which held in 2020, that borrowers would have to be heard before their accounts were classified as fraudulent. SBI and RBI had moved the Supreme Court against the order.

Asked about the impact on past cases, Prasad said that since a call had already been taken by the bank, re-examining such cases retrospectively would be an issue.

However, he said the SC verdict would not deter banks from classifying accounts as fraudulent where applicable. “Once we get a forensic audit done and have the report, we will have to give an opportunity to the borrower to represent his side of the case. Ultimately we have to take a call.” Prasad was speaking on the sidelines of an event to mark 80 years of the bank.

FY23 performance

On the eve of the celebration, the bank touched a business of Rs 4 trillion. The bank's MD & CEO said the net profit for FY23 would be the highest ever in the lender's history.

“We had set a net profit target of Rs 1,500 crore, which I think we are going to cross,” Prasad said. For the 9MFY23, the bank's net profit had stood at Rs 1,281 crore, which again was the highest in any nine-month period.

The bank has seen good loan growth this year, Prasad said. “We are expecting to close the year with a growth in  advances of more than 20 per cent year-on-year (YoY).”

He said that corporate loan growth has been almost 30 per cent. “It has grown faster than retail, though car, home and personal loans have grown at roughly 19 per cent.”

Prasad added that in FY24, with the finance ministry withdrawing LTCG benefits on debt mutual funds, a huge inflow was expected from debt schemes to bank deposits.

President Droupadi Murmu calls for balancing act

Banks need to strike a balance between creating assets and protecting public money, said President, Droupadi Murmu, on Tuesday.

Speaking on the occasion of 80 years of UCO Bank, the president said that banks have two major responsibilities. “First, they have to be custodians of public money. Second, they use the savings of today to create assets for tomorrow. Balancing these two responsibilities is a challenge for every bank.”

She also said that the inability to strike the right balance has sometimes led to economic worries in different parts of the world. “Banks are duty-bound to sustain the trust reposed in them by millions of people who save their money in the banks.”

Stating that she belongs to a family of bankers, the President said that fintech has been transforming the way people access and manage their money.

President Murmu, who was on a two-day visit to West Bengal, virtually inaugurated 50 new branches of UCO Bank. She also laid the foundation stone for renovation of Sri Aurobindo Integral Education and Research Centre at Rairangpur, Odisha, under the CSR initiative of the Bank.

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First Published: Mar 28 2023 | 6:07 PM IST

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