Fraud Fallout: SBI, two more lenders red-flag DHFL accounts

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Fraud Fallout: SBI, two more lenders red-flag DHFL accounts

A draft forensic report by KPMG found that the lender had disbursed loans and advances to inter-connected entities which were likely linked to the promoters.

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Three lenders — State Bank of India, Union Bank and IndusInd Bank — have red-flagged troubled mortgage lender Dewan Housing Finance Corp (DHFL) as fraud account, sources familiar with the development.

A draft forensic report by KPMG found that the lender had disbursed loans and advances to inter-connected entities which were likely linked to the promoters. Moreover, loans and advances totalling Rs 24,594 crore had been disbursed with inadequate loan documentation to 65 entities that had minimal operations. The report suggests funds may have been diverted by DHFL and the Serious Fraud Investigation Office (SFIO) is carrying on a parallel investigation.

A lender told FE that Grant Thornton – the new transaction auditor for DHFL – will prepare another report on DHFL and banks will base their final decisions on its findings. DHFL is undergoing a resolution process after the Mumbai bench of the NCLT (National Company Law Tribunal) admitted the case on December 2, 2019. Bids for the bankrupt mortgage financier are to be invited across three areas — retail, non-retail and slum r authority (SRA) loans.

Private lender IndusInd Bank is understood to have provisioned 25% of its exposure to DHFL. On January 14, it said it had provided Rs 240 crore towards fraud detected in two accounts during the quarter. Romesh Sobti, MD & CEO, IndusInd Bank said, “We have made (the) provision for fraud as per regulatory requirements. We have pre-empted them in terms of recognising frauds.” FE had learned from reliable sources that these two accounts were DHFL and Cox & Kings.

As per a Reserve Bank of India (RBI) master circular dated July1, 2014, an account can be classified as fraud if there is misappropriation and criminal breach of trust, fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property, unauthorised credit facilities extended for reward or for illegal gratification, negligence and cash shortages, cheating and forgery, irregularities in foreign exchange transactions or any other type of fraud which has not been specified.

In the first phase banks red flag the fraud after which banks take decisions based on a forensic report. A May 2015 notification of RBI noted the initial decision to classify any standard or NPA account as fraud will be taken by banks individually and it would be the responsibility of the lender to report the fraud status of the account on the Central Repository of Information on Large Credits (CRILC) platform. The time allowed for the entire exercise is six months from the date when the first member bank reported the account.

Source- Financial Express.