Indian banking sector has created processes in the past that do not encourage frauds. But banking frauds had been happening in three circumstances- when the process has become defunct, too much discretion given at individual level rather than ensuring objectivity leading to corruption, and strong opaqueness in the league of things. The processes have to be defined and there are means to test whether the process is correct or not. This needs standard internal processing, Ranjeet Mudholkar, CEO, Financial Planning Standards Board (FPSB) India, told Telangana Today.
“Currently there is too much discretion at individual levels. There has to be objectivity by defining parameters that refuse to allow subjectivity. To assess the repayment ability of a borrower, CIBIL score should be given more weightage. On the lines of CIBIL score of an individual, we can look at creating a mechanism of establishing CIBIL like scores to corporates. SEBI can explore making such ratings mandatory for all listed firms. Lending process should be fast and should flow bottom to top and not otherwise,” he added.
Regulator has responsibilities at three levels that give it a role of a controller, lending facilitator and enabler of systems and processes. The quantum of bad loans would not matter as much as the broader issue with the system itself. On paper, India has one of the best systems in the world. All the financial scams in the country can be routed to certain set of individuals.
Mudholkar explains, “We cannot compare the current banking scams to the economic depression of 1920s or 2008 when total systematic collapse has happened. Specific financial scams can be tackled by fixing specific people and specific processes. Regulator should ensure to be an enabler as Indian banks make efforts to comply with Basel II (dealing with risk determination and quantification of credit, market and operational risks faced by banks).”
FPSB which is keen to safeguard the financial borrower of the country, he says, realises that there is overexposure to credit and wrong credit to borrowers who reinvest for some other purpose than defined in the loan application. There should be regulation in investment advisory and financial planning and FPSB has recommended the Central government to look into it. There has also been emphasis on training the rural financial advisors in the past.
FPSB, which is a public-private enterprise established by over 50 financial institutions, public as well as private, across all asset classes, including asset management, banks, financial planners and insurance, is keen to play a key role in establishing the regulation for financial advisors. It focuses on financial planning, investment advisory and distribution improvements in the financial products.
The institution has certified over 7,000 financial planners and over 20,000 associate financial planners. FPSB which has multiple offices across country is keen to open its offices in Hyderabad shortly.
The FPSB along with the Indian Institute of Management, Lucknow has recently unveiled a report on the state of Indian consumer lending sector with respect to responsible lending practices in the presence of eminent industry names. Focusing on small ticket (up to Rs 15,000) personal and consumer durable loans across both banks and NBFCs, the research aims to introduce the Indian consumers especially first time borrowers to the concept of responsible lending practices.
The report evaluates the performance of industry along five selected parameters of loan application process, lender’s public information, fees & charges, loan servicing and financial inclusion on the basis of information that a consumer would be able to access in public domain, through his loan journey.
The research included inputs from institutions such as Axis Bank, Bajaj Finserv, Standard Chartered Bank, Tata Capital, Home Credit India Finance, PNB and Fullerton India.