Reserve Bank of India (RBI) has asked all banks to submit an action-taken report on by inflated valuations of real estate properties for the purpose of home loans.The matter was raised recently by RBI Governor D Subbarao during a meeting of the BFS ( Board for Financial Supervision). The banking regulator reminded bankers about the prudential norms on valuation of assets and asked them to follow these in practical.
While reviewing the annual financial inspection reports of Indian banks, RBI has come across a high incidence of inflated valuations of real estate properties frauds in recent times . Regarding that the matter was taken up by BFS and RBI Governor D Subbarao, wanted the issue to be addressed on a priority basis.
The RBI sources said, ''Banks were reminded that valuation agencies indulging in such practices could be blacklisted. They were advised to share the names of the blacklisted agencies with each other.
Such frauds affect banks when they have to liquidate a property due to a loan default. During liquidation, it is often found that the value of the property is far less than what was mentioned when the loan was sanctioned. RBI has noticed frequent occurrence of such incidents.
Indian Banks’ Association (IBA) CEO K Ramakrishnan said, “ Our IBA has shared RBI’s concerns with the banks. We have assured RBI that banks will exercise caution while evaluating properties.”
Non-performing loans in the Indian commercial real estate segment have increased from 1.6 per cent to 2.3 per cent in the past one year. From June 2010 to 2011 June ) .PSU banks also had high NPA. In 2010 October, RBI raised the risk weighted on residential housing loans of Rs 75 lakh and above, to 125 per cent and capped the loan to value ratio at 80 per cent.
About BFS..!
BFS ( Board for Financial Supervision) was formed in 1994 in the wake of the Harshad Mehta scam. Its objective is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. BFS, which meets once a month and discusses annual financial inspection reports and various issues related to the sector.
The Reserve Bank of India performs this function under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India.
BFS meetings
The Board is required to meet normally once every month. It considers inspection reports and other supervisory issues placed before it by the supervisory departments.
BFS through the Audit Sub-Committee also aims at upgrading the quality of the statutory audit and internal audit functions in banks and financial institutions. The audit sub-committee includes Deputy Governor as the chairman and two Directors of the Central Board as members.
The BFS oversees the functioning of Department of Banking Supervision (DBS), Department of Non-Banking Supervision (DNBS) and Financial Institutions Division (FID) and gives directions on the regulatory and supervisory issues.
Some of the initiatives taken by BFS include:
1. restructuring of the system of bank inspections
2. introduction of off-site surveillance,
3. strengthening of the role of statutory auditors and
4. strengthening of the internal defences of supervised institutions.
The Audit Sub-committee of BFS has reviewed the current system of concurrent audit, norms of empanelment and appointment of statutory auditors, the quality and coverage of statutory audit reports, and the important issue of greater transparency and disclosure in the published accounts of supervised institutions.
Current Focus
* supervision of financial institutions
* consolidated accounting
* legal issues in bank frauds
* divergence in assessments of non-performing assets and
* supervisory rating model for banks.
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