MUMBAI: The move to front-load Rs 55,000 crore into state-owned banks has a caveat; banks should ensure funds are not squandered. After a push from the Centre and the Reserve Bank of India (RBI), lenders are roping in monitoring agencies to track end-use of funds to stop promoters from siphoning bank loans.

In all, 83 agencies empanelled by the Indian Banks Association (IBA) would be appointed by lenders on case-to-case basis depending on size of the corporate and the complexity of their business.

“The idea is to see how related party transactions are happening and how loans are being used because the biggest issue is funds are not being used for the purpose they are meant to be,” said Rajnish Kumar, chairman, State Bank of India. “The idea is on an on-going basis to study the valuation of receivables, track stock valuation so that they are in line with the market prices and assets are not inflated.”

Currently, if a consortium of banks offers a credit facility of Rs 5,000 crore, banks rely on the rating of the firm and audited financial statements. Newly appointed monitoring agencies will look beyond basic financial information and probe the conduits of money laundering like loans diverted to investment arms, related party transactions, fund diversion to shell companies and vendor background verification.

Out of the Rs 3.5 lakh crore worth of loans involved in the first 12 accounts referred to bankruptcy courts, the government suspects that promoters siphoned off over Rs 1 lakh crore. The state has infused over Rs 3 lakh crore in PSU banks since 2015 but the market capitalisation of these banks excluding SBI is below the fund injected. Clearly the returns have been negative.

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“As one looks at the many recent governance failures and the resultant loss of public money, it is evident there needs to be a significant step-up in governance practices around corporate’s access to and use of public funds,” said Sai Venkateshwaran, head, CFO advisory, KPMG in India.

Most of the 12 state-owned banks are in an advance stage of roping in external agencies to monitor large loans. These agencies could include some consultancies, rating agencies or specialised firms with expertise in corporate forensic investigations, industry trackers said.

“Banks are looking to rope in external monitoring agencies to augment their efforts in identifying opportunities for risk identification and taking timely action covering key accounts,” said Dhruv Phophalia, managing director, Alvarez & Marsal India.





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