The Central Vigilance Commission (CVC) has drawn the government's attention to several irregularities in the transactions involving the sale of PSBs' non-performing loan accounts to Asset Reconstruction Companies (ARCs). 

 

This has prompted the department of financial services to write to all PSBs, asking them to analyze all accounts of over Rs 50 crore and initiate action after examining accountability of executives and lodge complaints with law enforcement agencies.

 

“Instances have come to the notice of the commission, wherein prudence has not been observed while taking a decision on the sale of the stressed asset to ARCs. Irregularities have been noticed in estimating the value of underlying securities (which) is much higher than the value at which the assets were sold to ARCs, post-sale realization from assets, management fees and expenses charged by ARCs, etc,” the CVC said after an analysis of 302 cases of over Rs 50 crore from 2014-15 to 2017-18.

 

In at least 48 cases, assets were sold to ARCs below the realizable value of securities that the borrower had given as security at the time of availing of the loan. In several cases, banks were found to be fixing the reserve price without factoring in the accrued interest, resulting in banks having to take a deeper haircut, the CVC said in its report to the government.

 

It also said that in case of companies that are sold as a “going concern”, the primary value of stocks and equipment were not factored in, while fixing the reserve price.

 

Similarly, in 55 cases, assets were sold within a year of the date of the account turning into a non-performing asset (NPA), without banks initiating recovery action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.

 

In all, 22 irregularities and gaps in regulations have been pointed out by the vigilance body, prompting the government to swing into action.