Another bank scam:IDBI discloses fraud of $119 million, shares fall

IDBI Bank Ltd said on Tuesday fraudulent loans of 7.72 billion rupees ($118.8 million) were issued from five of its branches in Andhra Pradesh and Telangana, sending its shares lower on Wednesday.

Some of the loans, which were issued during fiscal years 2009-2013 for fish farming businesses, were obtained against fake lease documents of non-existent fish ponds and by inflating the value of collateral, the company said here

The company found major lapses in processing and disbursing the loans by two of its officials. The lender dismissed one of the officials, while the other official had already retired, it said.

The Central Bureau of Investigation (CBI), has registered cases for two of the five complaints, relating to branches at Basheerbagh and Guntur, the company said.

The bank said earlier on Tuesday it initiated a quality assurance audit, expected to be completed by April.

IDBI shares fell as much as 3.5 percent to 73.6 rupees by 0512 GMT, while the index for public sector lenders Nifty PSU Bank index dropped as much as 1.8 percent.

Meanwhile, weak state-run banks like Indian Overseas Bank, IDBI Bank, Bank of India and Union Bank of India are in for regulatory action if the tightened prompt corrective action (PCA) is implemented properly, warns S&P in a report.

"If the norms were applied to reported numbers for December 2016, among the banks rated by us, Indian Overseas Bank is in risk threshold 3; IDBI Bank is in risk threshold 2; and Bank of India and Union Bank of India are likely be in risk threshold 1;" S&P credit analyst Geeta Chugh said today.

She also said the revised PCA, released last week by the Reserve Bank invests a lot of powers on the regulator to supersede the troubled banks, may trigger faster consolidation among the bad loan saddled state-run banks or higher capital infusion by the government.

Meanwhile, IDBI Bank has said it has strengthened its internal audit system by initiating a quality assurance audit to make it fall in line with "best practices".

The bank said it has initiated a Quality Assurance Audit (QAA) to further strengthen and enhance its internal audit function and align it with prevailing best practices.

For this purpose, the bank has appointed an external expert who was very much associated with the audit reforms in the PSBs.

The scope of QAA includes review of the internal audit framework pertaining to policies, processes, procedures, reporting structures, formats of the bank and integration thereof with risk based supervision.

It will also review of Branch Risk Rating Framework to ensure that various business risk assessment parameters, criticality, risk weightages and audit observations reflect the risk severity of the branches, in terms of business performance, adherence to the laid down procedures, regulatory compliances etc.

Among others, the enhanced audit framework will benchmark, identify and recommend good/successful practices of internal audit, particularly taking cognisance of prevailing practices in the market, IDBI Bank said in a statement.

Assessing compliance to standards for professional practice of internal audit will also be part of the enhanced system.

"The assignment is expected to be completed by April 2018 and the bank is determined to implement the suggestion of QAA immediately to strengthen and reinforce the internal audit system with the business goals, to ensure the quality of the operations and business," the bank said.

The banks are pressured to improve on their audit systems after the massive Rs 13,000 crore fraud unearthed at country's second largest public sector lender Punjab National Bank (PNB) earlier in February this year.

(with inputs from agencies)