Mumbai: Diversion of funds by corporates to unrelated activities through fraudulent means is one of the primary reasons for the rising non-performing assets in the banking and financial services industry, according to a study.
"Around 87 per cent of the respondents stated that diversion of funds to unrelated business through fraudulent means is one of the root causes for the NPA crisis," EY said in its survey titled 'Unmasking India's NPA issues - can the banking sector overcome this phase?'.
The report is based on the response from over 110 respondents from the public, private, foreign and co-operative banks during November 2014 to March 2015. Almost 72 per cent respondents predicted that the crisis is set to worsen.
The respondents indicated that lapses in the initial borrower pre-sanction process and inefficiencies in post-disbursement monitoring have played a key role in the NPA mess.
"We have seen that an often overlooked, but integral aspect is lapses in integrity by borrowers or by gaps in the initial sanctioning process undertaken by financial institutions," EY's partner and national leader (fraud investigation and dispute services), Arpinder Singh, said.
Nearly 72 per cent said borrowers are misusing restructuring norms set by regulatory authorities.
Around 86 per cent stated that existing monitoring procedures such as internal audits and concurrent audits alone were not enough to verify adequate functioning of the NPA mechanism.
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