Dewan Housing Finance Corporation Limited (DHFL) SCAM
- Steps to prevent frauds are needed which include tightening the internal and external audit systems of banks
- Dewan Housing Finance Corporation Limited (DHFL) has hoodwinked a consortium of banks driven by the Union Bank of India to the tune of ₹35,000 crore through financial misrepresentation.
Banking system
- The backbone of its economy.
- Excessive losses to banks affect each citizen since the amounts deposited in banks belong to the citizens of the country.
- NPAs mainly due to bad loans and scams.
- 34% of scams in banking industry are due to
- Inside work
- Poor lending practices
- Involvement of the junior and mid-level management.
An NPA projection, a list
- Financial Stability Report (2021): Gross NPAs of banks rising from 6.9% in September 2021 to 9.5%.
- High NPA reduces net interest margin of banks and increases their operating cost.
- IIM Bangalore: Poor bank corporate governance is behind rising bank scams and NPAs.
Steps that need consideration
- Exercise due diligence and caution while offering funds.
- Regulation and control of chartered accountants to reduce NPA of banks.
- Caution while lending to Indian companies that have taken huge loans abroad.
- Tighten internal and external audit systems of banks.
- Fast rotation of employees of the bank's loan department.
- Set up an internal rating agency for evaluation of large projects before sanctioning loans.
- Implement an effective Management Information System (MIS) to monitor early warning signals about business projects.
- Use artificial intelligence (AI) to monitor financial transactions.
Conclusion
- India has to improve its loan recovery processes and establish an early warning system in the post-disbursement phase.
- Banks need to carry out fraud risk assessments every quarter.