Ever since the banking system was eroded in major economies, contributing to the global crisis two years ago, banks in India have been put under greater scrutiny by the regulators. Despite the watchful eyes of RBI, which provides guidelines on priority lending, the labyrinth of norms provide enough space for banks for manipulation.
One of the key areas for manipulation is the agriculture loan portfolio. Gold loans, under certain stipulations, come under farm loans. Even a car loan can be considered as a farm loan, based on certain parameters. And, several banks have turned such options into brilliant opportunities to adhere to the priority lending norms.
The auditors are not supposed to go into graphic details of the loans as to whether a particular loan is given to a genuine applicant. While farm loan could be extended to a person on pledging gold, the banks ensure that the documents are in order. The person should own land. Whether there is cultivation remains another matter altogether. As the loan is small, to the extent of a few lakhs of rupees, the verification of the nature of the land or the real purpose of the beneficiary does not generally come under close scrutiny. In fact, the banks need to meet the quota set by the apex bank on priority lending.
A car loan for a single operator comes under priority lending. But the provision could be misused, a key source in the banking sector told The Hindu, on condition of anonymity. The idea is to help a car driver to own a car for his livelihood. Even a multiple transport operator can channelize the loan by making arrangements for taking the loans in the names of individual drivers. While the documents indicate individual loans, the beneficiary could be the large operator.
The system has been in operation for many years. There have been cases of takeover of loans from one bank by another. If a particular bank exceeds the priority lending limit, the remaining could be taken over by the other. Similarly, gold loans disbursed by non-banking finance companies are taken over by certain banks, with due documentation to certify that they are all farm loans, distributed to the needy farming community. Deloitte conducted a survey on banking fraud in India, the results of which were published earlier this year. The report throws light on various aspects associated with priority sector lending. “RBI fixes the target for priority sector credit by commercial banks. As per RBI rules, if there is any shortfall in priority sector lending from the above targets and sub targets, the concerned bank should deposit an amount equivalent to the shortfall in certain schemes.”
Priority sector lending by banks has been identified as one which has encountered increased number of fraud, the report said. “Siphoning off funds and overvaluation/ non-existence of collateral are some of the frauds, apart from fraudulent documentation. High to very high incidents of identity theft were also reported by 26 per cent of the respondents.”