At a meeting of bankers, CBI and Central Vigilance Commission (CVC) last week, the investigating agency repeated its long-standing complaint: lenders do not give permission to act on fraudulent loans.
Bankers say CBI has the power to request information and doesn’t need authorization to investigate. However, the agency believes banks should protect their employees and prevent the recovery of public funds lost to fraud.
The office asks the banks to cooperate in the establishment toleration by bank officials. However, bankers claim that not all fraud is an act of connivance. “There is a difference between how lenders and regulators view fraud. At banks, if a borrower uses the loan amount for any other purpose, the account can be classified as a fraud,” said one banker.
A recent law requires authorities to prove that a bank employee has made an ill-gotten gain – a lender suffering a loss is not enough. Section 17A of the Corruption Prevention Act, which came into force in July 2018, provides that an investigation or investigation can only be conducted with the prior approval of the “competent authority”.
“In most cases where CBI does an investigation, the matter is a few years old and they come up with the wisdom of the hindsight that makes even banks’ business decisions seem questionable,” said one banker.
For example, if a steel manufacturer sets up its own power plant, this can be part of the company. However, if the power plant is spun off into a separate company, this may amount to a diversion.
The other difference is that CBI sees connivance when rules are not followed. “The truth is that lending is about discretion and to limit the powers at the branch level there is a strict checklist. Therefore, most loans are sanctioned at a higher level,” said one banker.
Bankers say they hold accountability after a loan defaults. If the bank finds that an employee is not fulfilling his or her responsibilities, it takes action against them. A report will also be filed if there is a suspicion of toleration.
Last year, the RBI revised the monetary threshold for state banks to report fraud to the CBI. Frauds of between Rs 3 million and 25 million must be reported to the CBI’s Anti-Corruption Bureau if there is evidence of connivance by the staff. Fraud cases of Rs 25-50 million must be reported to the CBI’s Bank Security and Fraud Department.
Incidentally, while lenders can refuse permission to prosecute employees, such permission is not required after the employee has retired.