Banks, especially state-owned ones, are witnessing static growth, rising asset quality concerns, and declining proﬁtability. The sector has also witnessed multiple corruption, fraud, and bribery scandals.
With slowing global growth and limited uptake in domestic economic activity, banks in India are likely to face a very challenging 12 to 18 months. The Reserve Bank of India (RBI), India’s banking regulator, has initiated steps to help banks manage these challenges, but it will take some time for the impact to be felt, while the economic slowdown has affected the debt-repaying capability of corporate borrowers, analysis by Kroll reveals that a number of borrowers have diverted funds to unrelated activities, resulting in defaults. Banks have classiﬁed a proportion of these defaults as willful, which means the corporates and/or their promoters have the ability to repay but have chosen to default instead.
Kroll, a global leader in risk consulting, has worked with banks across regions providing critical support in time of crisis and distress. With a highly capable and experienced team, Kroll is well placed to offer banks best-in-class, comprehensive, independent solutions in the areas.
Pre-sanction Due Diligence
In today’s environment, only reviewing ﬁnancial statements of companies and benchmarking their performance with industry standards is not enough. It is important for banks to gauge both the ﬁnancial capability and the governance standards of companies before making a lending decision. By applying a combination of extensive public record searches, ﬁnancial investigation skills, and discreet source enquiries, Kroll can help banks carry out a more thorough assessment of the promoter’s background and business practices as part of the credit appraisal process, before or after a loan is made.
Investigation and Forensic Support
Many NPAs in the Indian banking system exist due to fraud committed by promoters and/or bank executives. We assist banks in conducting in-depth investigations to identify fraud. We undertake systematic reviews of the accounting systems and internal controls at a defaulting company and combine that with evidence of wrongdoing by gathering information from external sources to investigate fraud.
Due Diligence Under SDR and Asset Sale
Kroll can provide the necessary due diligence support in India and internationally to assist banks in their assessment of the credibility and capability of Indian and international bidders under debt restructuring and asset sales. In these situations, there is a risk of the promoter or allies buying back the company at a discounted value through proxy investors. A thorough assessment of the background of the bidders, their intent, source of funds, and past track record becomes a critical step for the bank while selecting the buyer. Kroll has a global network of more than 50 ofﬁces which assists clients.
Asset Searches and Litigation Support
In the event of default, it is not uncommon for promoters to claim bankruptcy when banks try to enforce the promoters’ personal guarantees. The globalization of business combined with the ever-expanding world of offshore ﬁnance, allows promoters to set up complex corporate structures to hide the true ownership of their assets. We can help banks locate unidentiﬁed assets of the promoters in India and overseas through the use of forensic investigative techniques in the collection of national and international public records. Our teams are strategically located and highly skilled at acquiring unbiased, actionable intelligence from an unparalleled network of human sources and contacts across the globe. We have extensive experience working with banks and international law ﬁrms to assist with the collection of information and evidence that is necessary for asset recovery in India and in foreign jurisdictions using both criminal and civil recovery remedies.
Implementing Fraud Management Best Practices
Banks need to create an ecosystem which identiﬁes fraud and monitors the fraud resolution process. Given the regulatory requirement to periodically report on fraud cases, banks must implement a robust process which helps in both detecting and reporting frauds. Backed by our global experience of implementing fraud detection processes and our understanding of the domestic banking industry, Kroll is well-placed to assist in developing, implementing, and monitoring the fraud management practices of Indian banks.
Kroll’s Global Expertise
Select Case Studies
Glitnir Bank – Kroll was retained by the Icelandicgovernment-appointed Resolution Committee of Glitnir Bank to investigate whether unlawful transactions had taken place between the bank and its shareholders and connected parties prior to its collapse. Kroll identiﬁed suspicious transactions totaling nearly US$2 billion and devised and implemented, with Icelandic, UK, and U.S. counsel, an international asset recovery exercise securing injunctive relief and disclosure orders in London, Reykjavik, and New York.
Irish Financial Institution – Kroll was appointed by the board of an Irish ﬁnancial institution following its liquidation as a result of the global ﬁnancial crisis. We forensically reconstructed a series of loans issued to signiﬁcant customers over a 10-year period to assess the basis on which the lending decisions were made and the probity of the lending relationship, as well as the nature of security provided. Kroll worked closely alongside legal counsel in providing a forensic narrative of the history of the relationship and the identiﬁcation of a series of questionable transactions. We also undertook an asset identiﬁcation exercise to assist the bank’s creditors in securing recoveries in relation to the amounts due.
Kabul Bank – Kroll was retained by the Central Bank of Afghanistan (DAB) to investigate the collapse of Kabul Bank which had previously been put into receivership in August 2010 following allegations of large-scale fraud and corruption. Kroll’s work included a forensic investigation of the books and records of the bank to identify any wrongdoing, an assessment of the role of the regulators in supervising the bank, and the tracing and recovery of lost assets. After completing this investigation, Kroll was hired as asset recovery advisors to the Kabul Bank Receivership for tracing and recovery of funds in the UAE, UK, U.S., Germany, and other jurisdictions.
Leading Bangladeshi Financial Institution – Kroll worked on an extensive review and remediation of the anti-money laundering (AML) program for a leading ﬁnancial institution in Bangladesh. We assisted the bank in upgrading its AML standards and procedures in line with global best practices. We carried out an in-depth AML review of the bank, its processes, and on-the-ground activities so as to develop a comprehensive gap analysis of the state of AML at the bank in comparison to global standards. This gap analysis was achieved through data assessments, in-depth interviews, process walkthroughs, branch and ofﬁce visits, and document and information reviews. We used multiple sources of data, analytics, and discussion insights to further validate the gaps.
Leading Indian Bank – Kroll worked on an investigation for an Indian bank that was negotiating with a local manufacturing company for the repayment of a loan. The bank’s concerns included siphoning of funds by the shareholders, the use of fake suppliers and customers, and limited visibility over the backgrounds of the shareholders. The Kroll team conducted a discreet investigation of the background and activities of select shareholders and employees who were suspected of embezzlement activities. We also carried out a detailed review of the ﬁnancials, management reports, and the underlying purchase transactions of the company using analytical procedures, which assisted the bank in the collection of evidence of fraud at the company.
National Bank of Moldova – Kroll is currently engaged by the National Bank of Moldova (NBM) to assist with a forensic investigation into alleged ﬁnancial irregularities resulting in the collapse of three local banks with a combined loss of US$1 billion. The Kroll team has been working alongside the NBM’s Special Administrators and Supervision team, reconstructing transactions and sharing techniques for tracing the proceeds of fraud.