Banks may tighten their norms for Fixed Deposits also

The Finance Min­istry has asked pub­lic sec­tor banks to tight­en norms, includ­ing KYC mon­i­tor­ing for high-val­ue fixed deposits, to check the kind of frauds sus­pect­ed to have been com­mit­ted at Dena Bank and OBC.

The min­istry would like banks to make a full-proof arrange­ment for high val­ue fixed deposits, includ­ing due dili­gence of know your cus­tomer (KYC) details, sources said. Banks have been advised to cat­e­gorise fixed deposits, which may fall under high val­ue criteria.

As per the pre­lim­i­nary foren­sic audit report, a fraud to the tune of Rs 436 crore in two pub­lic sec­tor banks- Dena Bank and Ori­en­tal Bank of Com­merce– have been com­mit­ted through mul­ti-lay­er sys­tem. It is sus­pect­ed that there were some mon­ey laundering.

The lenders are also alleged to have indulged in siphon­ing off the mon­ey (Rs 180 crore by OBC and Rs 256 crore by Dena Bank) received as fixed deposits.

Besides, the Finance Min­istry has asked the Reserve Bank to tight­en lend­ing norms to pre­vent bor­row­ers from open­ing mul­ti­ple cur­rent account out­side their con­sor­tium banks in the light of King­fish­er case.

There are a few instances where default­ing bor­row­ers indulged in diver­sion of funds by open­ing mul­ti­ple cur­rent account out­side the mem­bers of the con­sor­tium. There­fore the Finance Min­istry has urged RBI to tight­en the norms and mon­i­tor­ing sys­tem so that such activ­i­ties could be prevented.

Accord­ing to sources, King­fish­er Air­lines alleged­ly divert­ed funds by open­ing a cur­rent account in HDFC Bank and had a bal­ance of Rs 7.5 crore as on date. This fact was not known to the con­sor­tium of lender head­ed by State Bank of India. These banks have an out­stand­ing debt of Rs 6,521 crore from the now-ground­ed carrier.

Such diver­sion can be mon­i­tored by Reserve Bank as it is sec­tor reg­u­la­tor and there is need to strength­en the mon­i­tor­ing mechanism.

There has been a spate of defaults in the bank­ing sys­tem. Major­i­ty of them are due to slow eco­nom­ic growth but there is small pro­por­tion of cas­es where defaults are intentional.

Recent­ly, the Finance Min­istry had ordered lim­it­ed foren­sic audit into some non-per­form­ing accounts of Kolkata- based UCO Bank to find out whether there were any irreg­u­lar­i­ties in sanc­tion of loans.