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Given the rising levels of stressed assets in the banking sector, the Reserve Bank of India on Tuesday said an IT-enabled integrated collateral management framework, including a robust centralised database on collaterals, may help banks in not only monitoring the collaterals on an ongoing basis but also detect incipient cases of frauds in time.
In its Financial Stability Report, the RBI observed that the jump in stressed assets in the banking sector (especially public sector banks) has brought to the fore certain weaknesses in the collateral management frameworks of public sector banks (PSBs).
According to the Report, poor performance on recovery of a significant part of impaired loans may largely be on account of deficiencies in collateral management, including instances of inadequate security cover, pledge/hypothecation of the same security to multiple lenders, fraudulent documentation, multiple funding and overvaluation. In cases of consortium and multiple bank financing, some of the banks tend to depend largely on the assessment done by the lead bank or the bank having largest exposure, the RBI said.
As most of the PSBs do not have a centralised database for monitoring of collaterals, the task is often left to the largely overburdened branches, thus adversely affecting efficiency of the monitoring process. Hence, the need for an IT-enabled integrated collateral management framework, the RBI said.
Central Registry The FSR said the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) is emerging as an important component of the Indian financial market infrastructure that has the potential to go a long way in supporting the much-needed credit risk management of banks and other financial institutions.
An Immovable Asset Registry under the aegis of CERSAI has been operational since 2011. Recently, CERSAI has also been entrusted with the responsibility of supporting a robust movable asset registry. Additionally, CERSAI has been notified as the central know-your-customer (KYC) registry.
The RBI said given the importance of collateral and KYC registries for sound credit risk management of banks and financial institutions as well as their role in promoting financial inclusion, especially of micro and small enterprises and the poor, the role of CERSAI is critical.
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