Banks must be careful of fraud in lending to small and medium enterprises: report

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Bombay : Loans disbursed to small and medium-sized enterprises during the pandemic could pose a higher risk of fraud because banks do not constantly monitor them, according to the latest Deloitte India banking survey. The survey collected the views of 72 senior executives responsible for compliance and fraud risk management at various financial institutions.

Survey participants included private, public, foreign, cooperative and regional rural banks in India.

The survey showed that more than half of banks and financial institutions do not continuously monitor MSME assets as part of fraud risk assessment. “Around 51% of respondents indicated that they do not include MSME assets in their ongoing monitoring process. In light of recent government interventions, this is a potential area of ​​concern,” he added.

As part of the covid stimulus measures, the government had launched the Emergency Line of Credit Guarantee Scheme (ECLGS) to support MSMEs and other businesses with operational liabilities. Under the $4.5 trillion unsecured automatic loan program for small businesses, the guarantee was offered by the National Credit Guarantee Trust Co. Ltd (NCGTC) through an Emergency Secured Line of Credit (GECL) . Collateral coverage will be available for additional working capital and term loan facilities up to 20% of outstanding credit limit up to 25 crores.

According to a research report by the State Bank of India, 64.4% of the total limit or 2.9 trillion were already sanctioned as of November 21, 2021.

The Deloitte India survey also showed that the majority of financial institutions surveyed said end-use monitoring was the most vulnerable step in the corporate and MSME lending cycle to pose the greatest risk of fraud. . “The key to establishing an effective continuous surveillance framework is to properly implement its various enablers, such as an early warning signal (EWS), market intelligence and database research, and to synchronize their exit,” said Deloitte India.

According to the survey, 78% of respondents said fraud in the banking industry will increase over the next two years. This is a significant change from the previous edition of the survey in which 40% of respondents reported a 20% increase in fraud, he added.

The increase in fraud is mainly due to the large-scale remote working model, the increase in the number of customers using banking channels other than branches and the limited use of forensic analysis tools to identify potential red flags. “In the coming years, the banking industry may see a continued increase in fraud incidents spurred by the disruptions caused by the pandemic. While changes were likely on the cards, the accelerated pace may have been difficult to keep up with,” he added.

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