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The Reserve Bank of India is believed to be examining the possibility of laying down guidelines for banks when dealing with loan arrangers. This move has to be seen in the context of the Central Bureau of Investigation busting a bribe-for-loans scam in November 2010.
Bankers say it would be better if the central bank evolves ‘do's and don'ts' when it comes to dealings with loan arrangers. Based on these guidelines, banks could come up with appropriate risk mitigation mechanisms to break the banker-loan-arranger-borrower nexus.
Concerns
Though the engaging of professional loan arrangers, such as chartered accountants, by enterprises, especially those in the micro, small and medium enterprise (MSME) category, is a legitimate activity, there are lingering concerns that loans are being sanctioned by some top bank officials for a consideration, even when loan proposals are not bankable.
Further, the practice of retired bank chiefs canvassing, overtly or covertly, for loans for MSMEs has not gone down well in vigilance circles. Cases of unknown companies getting large loans have also come to light.
Due their expertise in finance, knowledge of the lending process and relationship with bankers, MSMEs engage loan arrangers to do all the ground work for getting loans. The arranger advises his client right from preparing a project proposal to sanctioning of the loan.
Big ticket frauds
Last November, at a conference of the chief vigilance officers (CVOs) of public sector and financial institutions, the then CBI Special Director, Mr Balwinder Singh, had expressed his concern on the big-ticket frauds happening in the banking system.
Pointing to the involvement of intermediaries and loan arrangers in the banking system, he advised the CVOs to be more careful in preventing such people from having access in the banking system.
Anti-corruption measures
In May last year, the Vigilance Commissioner, Mr J. M. Garg, had asked the CVOs and the chief executives to identify areas vulnerable to corruption in their respective banks and devise suitable anti-corruption measures. He observed that banks should keep an eye on the treasury functions, especially investments. Banks should also have a proper system of reviewing the discretion exercised at various levels and should strengthen the system further.
In November 2010, the CBI had arrested Chief Executive of LIC Housing Finance; Secretary (Investment), LIC; General Manager, Bank of India; Director (Chartered Accountant), Central Bank of India; Deputy General Manager, Punjab National Bank; the Chairman & Managing Director and two other officers of a Mumbai-based private financial services company (loan arranger), for giving bribes in exchange for loans, according to a statement issued by the agency.
The agency had charged them with accepting illegal gratification from private parties to facilitate credit facilities to various companies.
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