Deloitte, KPMG, EY helping RBI in investigation of NPA cases

MUMBAI: About a month ago, the Reserve Bank of India (RBI) received reports on forensic investigations it had ordered into the bad debt at two companies.

The RBI has never in the past hired private investigators or forensic experts to carry out such inspections — in these cases, to look for any diversion of funds or errors on part of banks. Banks have increasingly been launching investigations where they suspect fraud, but the RBI’s decision to take it upon itself and order an independent probe underlines its proactive efforts to handle the problem of growing NPAs on bank books.

The investigations lasted for about six months, said two people with direct knowledge of the matter, who spoke about the probes on the condition of anonymity. The RBI is yet to initiate any action on the reports, they said.

The two companies investigated were Surya Vinayak Industries and Deccan Chronicle Holdings, they said. Surya Vinayak Industries, a commodities firm based out of New Delhi, has an NPA of about Rs 2,500 crore on the books of many public sector banks. Punjab National Bank, which was the lead banker to the company, had accused its directors of fraud and misappropriation.

Media firm Deccan Chronicle Holdings has debt of about Rs 4,000 crore. Most of its creditors have categorised their exposure to the company as NPA.
Surya Vinayak Industries, Deccan Chronicle Chairman T Venkattram Reddy and the RBI didn’t respond to emails that ET sent on Tuesday seeking comments.

In the case of both companies, at least two banks on separate occasions had conducted forensic audits. However, the RBI conducted the forensic audits suspecting that some public sector banks themselves may not have followed proper procedures while giving out loans.

“Based on the report of the forensic investigations in these two cases, the RBI can initiate some action against some bank officials as well,” a banker in the know told ET.

People with knowledge of the matter said the RBI could launch more investigations if it suspected wrongdoing. “Going ahead, we see that the RBI would investigate NPAs of more than Rs 1,000 crore where a fraud is suspected. As of now, the RBI has no other investigations that are on,” said one of them.

RBI Governor Raghuram Rajan has taken a strong stance on bad debt. The total NPAs of some public sector banks are as high as 8-10%. New rules, meanwhile, allow banks to convert their debt into equity which some bankers said had given teeth to lenders.

Corporate investigators like Deloitte, PwC, KPMG, EY and Alvarez & Marsal are helping Indian banks in investigating NPA cases. Of late, banks are also going for asset tracing of promoters, said industry trackers. This means banks trace unaccounted assets of the promoters and negotiate to either pay back the debt or face the music. Some banks are also putting in place early warning systems which raise a flag as soon as a corporate loan starts showing signs of stress.

According to industry experts, often public sector banks are not prompt in identifying the frauds that lead to bigger problems. “Delayed reporting of ‘fraud’ loan accounts delays alerting other banks about the borrowers and also delays the filing of complaints with law enforcement agencies,” said Dhruv Phophalia, managing director and India leader of global forensics and disputes practice at Alvarez & Marsal. “This could lead to further loss of funds and evidence; absconding borrowers; untraceable witnesses; and money trail getting cold.”