Lenders have initiated discussions with intelligence agencies to establish an early warning mechanism aimed at promptly detecting and tracking transactions involving loan defaulters’ accounts. This proposed mechanism would enable the immediate flagging of suspected transactions, affording intelligence agencies sufficient time to take swift action, according to a report.
Counterparty transactions play a crucial role in enabling investigative agencies to monitor fraudulent activities, fund diversions, and other illicit actions occurring in accounts that may otherwise go unnoticed.
The current framework
Under the current framework, particularly for large-value fraud cases, the finance ministry has instructed public sector banks to request a report from the Central Economic Intelligence Bureau (CEIB) concerning any potential borrower at various stages, including pre-sanction, loan renewal, or when an existing loan becomes a non-performing asset (NPA) with an outstanding amount of Rs 50 crore or more.
Intelligence agencies now operate under a standardised format for gathering information, following the Reserve Bank of India-backed standard operating procedure proposed by banks for submitting information or documents to the CEIB. Additionally, there is a growing interest in digitising the entire information network to provide real-time data to banks.
The introduction of this latest initiative is expected to further strengthen the existing framework. Banks have suggested that there should be a threshold limit of Rs 1 crore for disclosing details of counterparty transactions in such cases.
Due to the various channels used for different transactions, it is not always feasible for lenders to provide all counterparty information. Having a threshold value for suspected transactions would enable banks to quickly furnish the necessary information.
The defaulters
Government data as of March showed that there were approximately 2,438 borrowers who had defaulted with outstanding amounts exceeding Rs 20 crore, totalling Rs 2.66 lakh crore. Minister of State for Finance Bhagwat Karad stated in the Rajya Sabha that the Directorate of Enforcement had registered 490 bank fraud cases related to NPAs of Rs 20 crore or more over the past five years under the provisions of the Prevention of Money Laundering Act, 2002. Assets worth Rs 15,113.02 crore had been confiscated and returned to public sector banks.
