New Delhi: In order to prevent loan defaults, fund diversions and frauds by making use of external data like revision in ratings, sharp share price movements and media reports, India’s largest public lender State Bank of India (SBI) is planning to reform its early warning system. The lender is looking for a data service provider to come up with ways to flag fraudulent transactions and potential defaults even before detailed audits show a public tender document.
The public lender is of the view that banks get conclusive information only after a forensic audit even though diverting funds through related parties, trusts, and foreign subsidiaries is among the chief causes of asset quality challenges and frauds.
Read More: ESIC to invest in ETFs, start with 5% of surplus funds, take it up to 15%
SBI, in documents reviewed by Mint, has said that the data provider has to offer alerts on breaches of a set of 199 early warning signals from external sources. These signals include alerts on changes in ratings or outlook; stock price falling to a 52-week-low during any particular week; promoter holding falling below 26 per cent; dip in the number of employees on a monthly basis as per data from the EPFO; negative news of raids by income tax, sales tax, central excise duty officials and imposition of penalties by government agencies.
“(The) bank possesses data like Central Repository of Information on Large Credits (Crilc) and credit information company (CIC), which cannot be shared with the service providers in terms of current regulatory guidelines. How can the bank leverage this data to strengthen the early warning signal system in collaboration with the service provider?,” asked SBI in one of the documents cited above by Mint.
It is worth knowing that the public lender in FY22 saw 4,192 frauds worth Rs 7,101 crore. In FY21, SBI had reported even more – 5,724 frauds – of an even greater amount – Rs 10,086 crore, according to the bank’s FY22 annual report showed.
Read More: Govt likely to allocate Rs 15,500 crore for crop insurance for FY24
SBI’s managing director in charge of risk, compliance, and stressed assets had in July said that the bank would use analytics to keep a record of emerging stress across sectors. “Say there are problems in the steel sector in a particular state; one way to know is to track media reports, but is our database showing impending stress from that region? After it becomes NPA, it will have to be dealt with, but if there are early indicators of stress, then this can be handled proactively,” Tewari had said.
Meanwhile, the RBI had in 2015 unveiled a framework for the prevention and early detection of such cases as an increasing incidence of large borrowers attempting to defraud banks was being seen widely. “The early detection of fraud and the necessary corrective action is important to reduce the quantum of loss which the continuance of the fraud may entail. The government is separately looking into the issue of more timely and coordinated action by the law enforcement agencies,” the central bank had said in May 2015.
