Cbi: Banks, CBI spar over nod for action on fraud loans

MUMBAI: Are all frauds criminal in nature? Should bank lending be completely rule-bound and objective? Bankers and CBI officials have different takes.
In a meeting of bankers, CBI and Central Vigilance Commission (CVC) last week, the probe agency again raised its long-standing complaint: Lenders are not giving permission to act in cases of fraudulent loans.
Bankers say that CBI has the power to call for information and don’t require permission to investigate. The agency, however, is of the view that banks are protecting their employees and preventing the recovery of public money lost due to fraud.


The bureau is seeking cooperation from banks in establishing connivance by bank officials. However, bankers claim that every fraud is not an act of connivance. “There is a difference between how lenders and the bureau see frauds. In the case of banks, if a borrower uses loan amount for another purpose, the account can be classified as a fraud,” said a banker.
A recent law requires authorities to establish that a bank employee has made wrongful gain – a lender suffering a loss is not enough. Section 17A of the Prevention of Corruption Act, which came into force in July 2018, provides that there can only be an inquiry or investigation with prior approval of the ‘appropriate authority’.
“In most cases, when CBI comes in for investigation, the matter is a couple of years old, and they come with the wisdom of hindsight because of which even commercial decisions taken by banks appear questionable,” said a banker.
For instance, if a steel manufacturer sets up a captive power plant, it can be a part of the business. However, if the power plant is carved out into a separate company, it can amount to diversion.
The other area of difference is CBI’s seeing connivance wherever rules are not followed. “The truth is that discretion is involved in lending and to limit the powers at the branch level, there is a stringent checklist. As a result, most loans are sanctioned at a higher level,” said a banker.
Bankers say that they conduct an accountability exercise after a loan goes bad. If the bank finds an employee erred in his responsibility, it takes action against them. Also, if there is suspicion of connivance, a complaint is filed.
Last year, the RBI revised the monetary threshold for state-owned banks to report fraud to CBI. Frauds from Rs 3 crore to Rs 25 crore must be reported to CBI’s anti-corruption bureau, provided staff connivance is established. Frauds from Rs 25 crore to Rs 50 crore must be reported to CBI’s banking security and fraud cell.
Incidentally, while lenders can hold back permission to prosecute employees, no such permission is needed after the employee has retired.

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