To prevent fraud, banks plan to appoint agencies to monitor high value accounts


In order to prevent fraud on high value accounts, banks are considering using the services of specialized monitoring agencies to closely monitor their activity, including purchases / invoices, actual production versus projections, transactions / high value payments such as payee and purpose, and cash inflows / outflows.

The banks, under the aegis of the Indian Banks’ Association (IBA), have set up a committee of senior bankers to pre-select and impale branches (for an initial period of three years) for specialist monitoring of loan accounts where the collective exposure is ₹ 500 crore and above.

Once the branches are set up, the lead bank of a consortium of banks will select a lender and give them the task of monitoring an account. The decision to appoint an external agency to monitor loans comes amid a backdrop where banks are reporting a 72% increase in year-over-year fraud to 41,168 crore yen in fiscal 2018, from 23,934 crore yen in fiscal 2018. during fiscal year 2017. According to the RBI, fraud has become the most serious concern in operational risk management, with 90 percent of it located in banks’ credit portfolios.

Working capital

In the case of working capital, banks will seek the help of specialized agencies to track purchases / invoices on a daily / weekly basis and compare them against the monthly operating budget submitted by the company; examine the constitution of stocks; monitor actual operations against projections; verify the high value transaction / payment with regard to payee and object; and evaluate financial information.

In addition, banks expect branches to do additional verification of evidence of a company’s end-use and usage of facilities, and to examine the source of the working capital / letter margin. credit / bank guarantee. In the case of term loans, the banks will engage the agencies to ensure proper monitoring of the implementation of the project, in accordance with the schedule and the use of funds (physical progress of the project compared to the injection of funds) .

Agencies will either conduct a physical inspection of the project at regular intervals or deploy a manager to the project site for ongoing monitoring and document reviews, as well as continuous monitoring of progress reports, especially against deadlines. ‘origin to avoid sudden overtaking shocks.

They will determine the progress and relevance of related transactions (such as payments made to contractors and sub-contractors, suppliers, orders placed and the commercial terms thereof) and deviations in the progress of the project from the deadlines and the amount disbursed.

S Ravi, accountant and banking expert, said that while the decision to appoint an external agency to monitor loans is a good move, the role between monitoring agencies and operational people in banks should be well defined.

“Most frauds in the recent past have mainly been due to embezzlement / unrelated activity. If a specialized agency is appointed, it will monitor all transactions in a downstream account on a day-to-day basis. Such an agency may be able to do a better job than a normal banker, ”said BK Divakara, former executive director of the Central Bank of India.

Non-financial parameters

Banks expect supervisory agencies to closely monitor industry specific trends, cyclical changes, government policies and suggest precautionary / mitigation measures, sustainability / sensitivity of products / activities ; perform supplier due diligence; report technological obsolescence; and recommend alternative measures, among others.

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