Govt asks PSU banks to follow common strategy for troubled sectors

The Government has been concerned about the exposure of banks to the four troubled sectors of aviation, power, telecom and textiles. In a recently held meeting, the financial services secretary met with the heads of top public sector banks. The meeting was held with the intention of asking all the PSU banks to follow a common strategy while dealing with these sectors.

Banks on their part are also taking necessary steps to deal with this problem. They have restructured their loans to power companies or even stopped lending to the sector. For textiles, they have made provision for a debt recast package.

"It is important that there is better coordination between these banks even if they are not part of the same consortium that lends," the official said.

The move comes at a time when several banks have restructured their loans to power companies and state utilities , or have stopped lending, and a debt recast package for the textiles sector is in the works. Similarly, in case of aviation, loans to Air India have been restructured, while a request for fresh funding assistance from Vijay Mallya-promoted Kingfisher Airlines has been submitted to lenders led by State Bank of India.

The Reserve Bank of India too stuck a note of caution on non-performing assets of banks, which are rising three times faster than the five-year average. It had made a special mention of the power sector and said: "With losses among state electricity boards and coal supply issues faced power projects, high concentration of bank credit in power generation is a matter of concern," the regulator had said in the Financial Stability Report.

RBI's stress test showed that if bad loans were to increase 150%, 20 banks representing 46% of bank lending in India would be forced to seek capital support as their core capital adequacy would fall below the prescribed 6%. Considering that gross NPAs of banks were at 2.01% in March 2011, a 150% increase would translate to a gross NPA ratio of 5.02%.

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Audit firms involved in scams face heavy fines

Jail up to 10 years and fines up to three times the scam amount await chartered accountants and audit firms found guilty in corporate frauds. Audit firms, including the global Big 4 - Pricewaterhouse, KPMG, Deloitte and Ernst & Young - for the first time face punitive action, closure of business and stiff penalties for financial frauds as the government proposes a stricter regime to check scams and irregularities.

Mindful of the multi-crore Satyam scam and other corporate frauds, the Companies Bill 2011, tabled in the Lok Sabha last week, has proposed to give powers to the National Company Law Tribunal to take stern action against erring audit firms. A firm found guilty by the Tribunal will be ineligible for audit assignment of "any company" for a period of five years. The action includes stiff penalties, mandatorily running higher than the amount of fraud committed.

The Companies Bill proposes that the fine "shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved." Fraud, the bill says, includes "any act, omission, concealment of any fact or abuse of position committed by any person or any other person with the connivance in any manner, with intent to deceive, to gain undue advantage from, or to injure the interests of, the company or its shareholders or its creditors or any other person, whether or not there is any wrongful gain or wrongful loss".

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RBI expands Scope of Banking Ombudsman Scheme; Includes Fair Banking Practices

The Reserve Bank of India today announced the revised Banking Ombudsman Scheme with enlarged scope to include customer complaints on certain new areas, such as, credit card complaints, deficiencies in providing the promised services even by banks’ sales agents, levying service charges without prior notice to the customer and non adherence to the fair practices code as adopted by individual banks. Applicable to all commercial banks, regional rural banks and scheduled primary cooperative banks having business in India, the revised scheme will come into effect from January 1, 2006.

In order to increase its effectiveness, the revised Banking Ombudsman Scheme will be fully staffed and funded by the Reserve Bank instead of the banks. Under the revised Banking Ombudsman Scheme, the complainants will be able to file their complaints in any form, including online. The bank customers would also be able to appeal to the Reserve Bank against the awards given by the Banking Ombudsmen.

The new scheme provides a forum to bank customers to seek redressal of their most common complaints against banks, including those relating to credit cards, service charges, promises given by the sales agents of banks, but not kept by banks, as also, delays in delivery of bank services. The bank customers would now be able to complain about non-payment or any inordinate delay in payments or collection of cheques towards bills or remittances by banks, as also non-acceptance of small denomination notes and coins or charging of commission for acceptance of small denomination notes and coins by banks.

The Reserve Bank had first introduced the Banking Ombudsman Scheme in 1995 to provide expeditious and inexpensive forum to bank customers for resolution of their complaints relating to deficiency in banking services. The Scheme was revised in 2002 mainly to cover Regional Rural Banks and to permit review of the Banking Ombudsmens’ awards against banks by the Reserve Bank. The Banking Ombudsmen currently have their offices in 15 centres.

The Reserve Bank is also in an advanced stage of setting up an independent Banking Codes and Standards Board of India to ensure that comprehensive code of conduct for fair treatment to customers are formulated by banks and adhered to.

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