Union Bank starts Auditing Branches

After some of its branches were interrogated by the income-tax department for their involvement in the Madhu Koda money-laundering case, state-owned Union Bank has started auditing the accounts of the branches which had shown high transactions.
Talking to FE, a top brass of the bank said on condition of anonymity, “We have already asked some of those branches to go for fresh audit that are having high-value transactions.” However, he refused to give any further details.
The bank official stressed that entire transactions in his bank was in compliance with Know-your-customer (KYC) and anti-money laundering (AML) norms.
Another official of the bank said that like other banks, all the branches of his bank had undergone audit on a regular basis.
However, the periodicity of the audit depends on the risk categorisation of the branches, added the official.
It means that while some of the branches undergo audit on an annual basis, there may be quite a few branches of the bank that may require audit on a half-yearly basis, he said without giving any further details.
The act of special audit by the banks comes in the wake of the government asking the bank to carry out an audit of all its branches without delay so as to find out if any large deposits in the bank went unreported.
The bank chairman & managing director, MV Nair, was questioned by the officials of the income tax department in Mumbai on Monday.
The I-T department, during a probe into alleged money laundering by former Jharkhand chief minister Madhu Koda, had stashed Rs Rs 214 crore on a bank account at one of the bank’s branches in Zaveri Bazar between January 5 and March 30, 2007.
Nair was not available for his comments as he is busy with the preparations of the board meeting of his bank in New Delhi.

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Corporation, Andhra & Dena Bank hot picks on M&A street

Corporation Bank, Andhra Bank and Dena Bank, are the hot favourites takeover targets among the large PSU banks which met the Finance

Ministry officials on Wednesday.

Chiefs of Punjab National Bank, Canara Bank, Union Bank of India, Bank of India and Bank of Baroda met Finance Ministry official to discuss the pros and cons of consolidation among banks in India.

Sources from banking industry, on condition of anonymity, said Union Bank, Bank of Baroda and Punjab National Bank were keen on acquiring Corporation Bank while Canara Bank and Punjab National had shown interest in Dena Bank.

Bank of India had expressed interest in Oriental Bank of Commerce. Union Bank and PNB had also shown interest in Andhra Bank.

Bankers point out that the discussions on are in preliminary stage and it may take very long for it to materialise. Sources said that the Finance Ministry officials are likely to meet CEOs of small to medium size PSU banks to read their mind on consolidation. CEOs of small-to-medium-size banks are most likely to oppose any move of being acquired by large bank on the grounds that loyal customers will desert them and that the banks are performing better on stand alone basis.

Interestingly, none of the large banks were keen on acquiring any bank located in eastern belt namely UCO Bank, Allahabad Bank or United Bank of India on fears that there could be resistance from the political front and other labour issue.

In fact one of the suggestion that came forth during the discussion was to merge all the three Kolkata based banks into one. None of the large banks showed interest in Bank of Maharashtra, Central Bank of India, Punjab & Sind Bank. Sources said that the resistance was largely due to union problems faced by these banks.

Government has been talking of consolidation among Indian banks for over five to six years. However, sources said that this time large banks were eyeing smaller banks which gave them better geographical reach and had relatively clean balance sheets. This was not the case in the previous round of discussion.

For instances, on Wednesday, PNB made a pitch for banks located in the west namely Gujarat and Maharashtra, Union Bank of India and Bank of Baroda showed interest in southern belt, Bank of India was keen on increasing its presence in the north belt while Canara Bank also showed interest in increasing its presence in western India.

In the past, chiefs of Bank of India and Union Bank of India were keen on merger which would make them a strong bank in the western belt since both banks have huge presence in Gujarat and Maharashtra. But the talks failed to materialise due to strong resistance from the Left front.

During the meeting with Finance Ministry on Wednesday, banks urged them to frame rules for M&A. "Every bank would like to acquire another bank irrespective of its size. Nobody wants to be acquired. But if there is a set rule on which banks are eligible to acquire and what would be to the terms, it would enable banks to work on consolidation," suggested one of the bank chief in the meeting.

Government has received $2 billion from World Bank which is aimed at providing financial support to PSU banks to help them meet the capital requirement. Many banks have indicated to the Finance Ministry of the capital requirement over the next three years to maintain growth.

Bankers say that before allocating the capital to banks, government is making a bid for consolidation.

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Appointment of a Nodal Officer by banksin respect of their Currency Management Operations

The High Level Group on Currency Management chaired by Smt. Usha Thorat, Deputy Governor, Reserve Bank of India submitted its Report in August 2009. The Group, inter alia, emphasized the importance of using modern technology and security systems for stocking, processing and distribution of currency to ensure adequate availability of genuine and clean notes to the members of public.2. With a view to ensure that the banks accord due priority to the above objective, it is proposed that all banks maintaining currency chests shall entrust the responsibility of currency management to a functionary not less than the level of General Manager, who will be the nodal point of contact for Reserve Bank of India and will be accountable for the obligations cast upon currency chests by the Reserve Bank of India. Other banks shall also entrust the responsibility to a sufficiently senior functionary. 3. Banks may inform us the names of such Nodal Officers, along with his/her office address, contact number (landline as well as mobile number, fax number) e-mail address, etc. at the earliest. 4. Detailed guidelines based on the report of the High Level Group are being issued separately.

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Banks may park excess funds in short-term debt instruments

Banks are expected to step up investment of their surplus funds in short-term debt instruments such as commercial papers, treasury bills, and government securities with one-two years residual maturity. This is to address the Reserve Bank of India’s concerns over circular movement of liquidity from banks to the liquid schemes of mutual funds (MFs) and vice-versa. The central bank’s apprehension over circular movement of funds stems from the fact that should liquidity start drying up (on the back of improved credit pick-up) banks would redeem their mutual fund investments to shore up their funds position. Faced with redemption pressure, MFs would then resort to heavy borrowing via Clearing Corporation of India Ltd’s collateralised borrowing and lending obligation (CBLO) facility, thereby putting upward pressure on CBLO as well as call money rates. Bankers hold the view that the RBI’s “banks should lend directly to corporates and not through the intermediation of mutual funds” message implies that the central bank is anxious about the systemic implications of the circular movement of liquidity. According to Mr. Arun Kaul, Executive Director, Central Bank of India, once the board approves internal prudential limits for investment in mutual fund schemes so as to mitigate risks, banks will actively invest in short-term debt to manage their short-term liquidity. According to industry observers, a good chunk of the over Rs 1 lakh Cr. excess liquidity parked by banks in liquid schemes of mutual funds could find its way into short-term debt instruments. Tepid credit appetite in the economy in the financial year, so far, has forced banks to make large investments in government securities and also fairly sizeable investments in units of mutual funds. Credit pick-up in the financial year up to October 9 at Rs 1,14,766 Cr. is less than half the off-take (Rs 2,47,775 Cr.) during the corresponding period last year. Hence, banks had no choice but to collectively channelises their daily surplus aggregating over Rs 1 lakh Cr. to the low-yielding RBI’s reverse repo window. Further, banks also invested Rs 2,11,500 Cr. in the financial year up to October 9 in government securities (Rs 6,169 Cr. in the corresponding year ago period) and deployed Rs 1,28,772 Cr. in liquid scheme of mutual funds (Rs 9,079 Cr.).

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Govt plans system to track corporate fraud

Having failed to detect the Satyam scam, the government has embarked on a new vigilant system to track corporate frauds as part of which it has decided to look into companies whose financials are found to be suspicious. According to an official in the ministry of corporate affairs, the government's new drive would be technology-driven and bank heavily on the MCA21 e-governance programme that is now the main gateway for corporates to file their statutory documents. "This is part of our efforts to have an effective early warning system and the idea is to detect frauds, or any tendency of fraud, early," the official said, adding that pilot work on the project has already been kick started. Giving details of the programme, he said the government plans to involve the regional directorates (RDs) and registrar of companies (RoCs) in the exercise after it gets computer-generated alerts on suspect companies through the e-governance network. "There would be several triggers to generate any suspicion on the activities of a corporate. These include things like unusually-high jump in profits; suspect related-party transactions; and huge amounts of unutilised cash and bank balance," the official said. Once a list of suspect companies is drawn up, these would be looked into by the RDs and the RoCs who would look into their filings and financials further. "However, this would be a non-invasive document verification exercise," the official said, pointing out that there was no intention of hounding the corporate sector.

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