Detectives wanted: A fraud-hit Indian bank’s desperate measure to recover loans

Sniffing around.
Sniffing around.
Image: Reuters/Rupak De Chowdhuri
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The Punjab National Bank (PNB), which in February 2018 reported the biggest fraud in Indian banking history, is now seeking private detectives to help trace defaulting borrowers and their assets.

“The policy aims to significantly supplement efforts of the field officials in recovering bank’s dues in NPA (non-performing asset) accounts by utilising services of the detective agencies,” the bank said in an advertisement posted on its website. Among other functions, the detectives will have to undertake the following, typically within 60 days of receiving details from the bank:

Locate the borrower(s)/co-borrower(s)/guarantor(s)/mortgagor(s), (in/outside India) including their legal heirs who are either untraceable or not available at the addresses given in bank’s records

Ascertain latest information about their present address(es)/occupation(s), business(es), income streams, details of their all assets, whether charged or uncharged, their location(whether in India or abroad), value and ownership, etc.

Give details of bank accounts maintained by the defaulting borrower(s)/guarantor(s), including their legal heirs

Gather any other information which the Bank cannot access by utilising normal channels like CIBIL/internet/local enquiries and which may be considered necessary by the bank for recovery of the bank’s dues

In February, India’s second-largest government bank unearthed a loan fraud of nearly $2 billion (over Rs13,000 crore) at one of its branches in Mumbai. A few bank employees, in collusion with jewellers Nirav Modi and his uncle Mehul Choksi, had diverted large amounts of money over a period of seven years. The duo fled the country before the whole operation came to light.

The defaults by Modi and Choksi are only part of PNB’s problems. As of December 2017, its gross NPAs stood at 12.11% of the total advances, equivalent to Rs57,519 crore. In the January-March quarter, its share of bad loans is expected to go up significantly and the bank is likely to report losses.

Desperate times, desperate measures

Typically, banks employ a detective agency in two cases, explained a retired senior public sector bank official. Either when the borrower is missing or if the bank suspects foul play.

“We have seen cases where the borrower may claim that he has lost his money and is bankrupt but actually has diverted the funds. So these detectives can help find the money trail which would normally be difficult for a banker to do,” the retired official told Quartz, requesting not to be named.

PNB is not the only lender to resort to such measures. Since the bad loans began to pile up over the past few years—as of December 2017, the industry’s stressed assets stood at nearly 12%—banks have been seeking out private detective agencies.

However, PNB has warned the agencies against using any intimidating tactics. “The supreme court has cautioned the banks against use of coercive methods for recovery of loans and in other similar cases,” the advertisement said.

These agents will be paid anywhere between Rs2,500 to Rs1,50,000, under various categories, depending on the information gathered. In case of failure to complete the assignment, they will be paid only between Rs3,000 and Rs7,000.