To guard against a further increase in bad loans, banks are planning to dig deeper when it comes to loan appraisals by tapping the database of the Income-Tax and Goods and Services Tax (GST) departments.
This move is expected to not only minimise the chances of their falling victims to frauds and of loans turning bad, but is seen as making loan appraisals more foolproof and enabling loan decisions to be conveyed faster.
Currently, banks are able to tap into only the database of the Ministry of Corporate Affairs to get information on forms, returns and documents (including net worth, shareholding and ownership pattern, detailed financial statements — balance sheet and profit & loss accounts, prospectus, memorandum of agreement, articles of association) filed by companies. This information helps banks evaluate loan proposals by companies.
“Since I-T and GST departments can access our information, we too should be allowed reciprocal access to their database. Such a link can give us granular information on the taxes that companies have paid and whether they have tax arrears. We will be able to get the measure of a borrower’s business, and the credit appraisal process will become more robust,” said a senior public sector bank official.
That banks are grappling with a huge pile of bad loans is underscored by the fact that the aggregate gross non-performing assets (NPAs) of scheduled commercial banks increased from ₹3,23,464 crore, as on March-end 2015, to ₹10,35,528 crore, as on March-end 2018 (provisional RBI data).
In reply to a question in the Lok Sabha earlier this month, Minister of State for Finance Shiv Pratap Shukla attributed the spurt in stressed assets to aggressive lending practices, wilful default/ loan frauds / corruption in some cases, and to economic slowdown.
An Asset Quality Review was carried out by the Reserve Bank of India in 2015; it revealed a high incidence of NPAs.
The minister said the expected losses on stressed loans, not provided for earlier under the flexibility given to restructured loans, were reclassified as NPAs and provisions made for expected losses. During financial year 2017-18, all such schemes for restructuring stressed loans were withdrawn.
Banks are also under pressure to tackle frauds. According to RBI data, banks reported 5,879 cases of frauds (of ₹1 lakh and above) aggregating ₹32,048.65 crore in 2017-18.
Source: The Hindu Business Line
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