Evergreening of loans, cover-ups and more: Here's what RBI's annual inspection report on SBI reveals

State Bank of India (SBI)

The Reserve Bank of India’s (RBI) annual inspection report on State Bank of India (SBI) has brought to light deficiencies across almost every operation of the bank, reports Moneylife.

Evergreening of loans, suppression of data, sidestepping know your customer (KYC) norms, flouting anti-money laundering rules and ignoring RBI reports on deficiencies are a few things that were highlighted to cover up non-performing assets (NPAs) at the bank.

Improper credit need assessment, lack of credit surveillance, shortfall in loan security as advised, non-enforcement of security given and loans disbursed even before a charge is created on the collateral were some other deficiencies pointed out by RBI, the report stated.

As per the report, an undue increase in loans to problem sectors like diamonds and power, flouting single customer credit limits and sector limits served as evidence of evergreening of loans. Such violations have repeatedly surfaced in RBI’s inspections, which pointed to SBI’s attempts to keep under wraps its bad loan problem.

Several images of the report pointed at deficiencies spanning SBI’s operations -- from management quality to overall functioning of the bank -- as documented by RBI. Year after year, similar errors of omission and commission were reflected in the Risk Assessment Reports (RARs).

Right to Information (RTI) activist Girish Mittal was finally granted access to these reports after a long drawn battle with the central bank.

Under Section 35 of the Banking Regulation Act, 1949, the RBI is empowered to undertake annual inspection of all commercial banks. However, it had been denying petitions demanding disclosure of these reports for the aforementioned period, citing 'economic interest' and 'fiduciary relationship' with banks as the reason.

However, on April 26, the SC directed the Reserve Bank of India (RBI) to disclose information pertaining to its annual inspection report of banks under the Right to Information (RTI) Act unless they are exempted under law. It added that the central bank is duty bound to disclose all such information sought under the Act.

Following several warnings from the apex court and the Central Information Commission, the RBI, in a letter dated June 26, wrote to Mittal, “In compliance with the SC judgement (on April 26), please find enclosed a CD containing inspection reports sought by you...after severing information which is exempted from disclosure under Section 8(1)(j) of RTI Act.” It shared inspection reports on four banks -- ICICI Bank, Axis Bank, HDFC Bank and SBI -- for FY12, FY13, FY14 and FY15.