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India sets up mechanism to prevent bank fraud

Alerts generated from Central Economic Intelligence Bureau

Question: Some public sector banks in India have suffered because of scams committed where no recovery has been made so far. Have any lessons been learnt from these experiences and any measures taken to prevent frauds taking place with public banks?

ANSWER: In order to prevent financial scams, the government has put in place a system of generating alerts from the Central Economic Intelligence Bureau (CEIB). This bureau lists cases of money laundering and fraud committed by individuals or entities. Under the scheme, it is mandatory for all public sector banks to obtain a report from CEIB on borrowers/entities who apply for loans/facilities of Rs.500 million or more. The CEIB will furnish the report within a period of 15 days of receiving a request from a bank. In this report, they will list out all money laundering and tax evasion cases pending against such borrowers. Dedicated e-mail IDs have been created in public sector banks and a special cell has been set up in CEIB to process such requests. This would enable the bank management to take an informed decision before sanctioning high value loans of Rs500 million and above. No paper-based communication will be involved and the generation of requests and receiving reports from CEIB will be totally digital. The government has made CEIB a repository of all cases of economic offences being investigated by different agencies. So far a database of about 250,000 economic offenders consisting of companies and individuals has been created giving a unique code to each of these entities.

Question: One of my firms is setting up a green energy project in India. A contract has been entered on this with a government agency. Disputes have arisen between my firm and the government agency. Indian courts are not able to resolve the dispute in an expeditious manner due to backlog of cases. Is there any alternate mechanism for settling the dispute?

ANSWER: The government has an ambitious programme of creating a 500 gigawatt clean energy capacity by 2030. To do so, it will have to expedite the pace of implementation by resolving all commercial disputes in a time bound manner. The government has therefore decided to set up a three-member panel of independent persons to resolve disputes between government-designated project implementing agencies and developers or contractors of such projects. This alternate dispute resolution mechanism will cover all renewable energy schemes, programmes or projects. It will also be applicable to contractual agreements between agencies and contractors. However, the aggrieved party will first have to approach the designated implementing agency and if the dispute cannot be resolved at this stage, it can be referred to the three-member panel of independent persons whose decision will be final and binding on the Government agency as well as the contractor/developer implementing the project.

Question: The production linked incentive scheme which was launched three years ago seems to be successfully implemented according to press reports. To what extent has the Indian economy actually benefited from this scheme?

ANSWER: Until now more than 730 applications have been approved under the production linked incentive scheme covering 14 sectors. Three new sectors are to be added, namely, toys, leather products, and e-bikes. An allocation of Rs1.97 trillion has been made from budgetary resources. Due to this scheme, there has been a 76 per cent increase in foreign direct investment in India for the manufacturing sector. During the financial year 2022-23 $21.3 billion was invested in India as against $12.1 billion in the earlier financial year. Over 170 medium and small enterprises are among the beneficiaries who are involved in sectors like production of bulk drugs, medical devices, pharmaceutical products, white goods, telecom components, food processing, textiles and drones. The drone sector has seen a seven fold increase in turnover. Import substitution of 60 per cent has been achieved in the telecom sector. Of the total $ 101 billion electronics production in 2022-23, smartphones contributed $44 billion which included exports of $ 11.1 billion.

H. P. Ranina is a practising lawyer, specialising in tax and exchange management laws of India.