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FIs may hire sleuths to track funds diversion

Sarbajeet K. Sen

NEW DELHI, Jan. 23

STEPPING up their offensive against deviant borrowers, financial institutions (FIs) have decided to engage the services of private investigators to track down instances of diversion of funds by promoters.

FIs feel that the fear of sleuths snooping down on transactions would not only act as a deterrent on private companies against such acts of siphoning funds off projects, but also help the lenders to prepare a fool-proof case against the errant borrowers by confronting them with hardcore evidence on their activities.

The possibility of hiring the services of such firms was discussed by leading FIs at a recent heads of institution meeting.

"We would jointly take the step of hiring investigating agencies in borrowal accounts where we feel that there has been a diversion of funds," the Chairman and Managing Director, IFCI, Mr V.P. Singh, told Business Line.

Mr Singh said that the decision was the latest step being explored jointly by the FIs to inculcate a culture of discipline among the borrowers. Among the other measures was to persuade companies to professionalise their management by delinking ownership and managerial functions.

Also in extreme cases where the FIs had thought it prudent, they had taken measures to effect a change in the management of defaulting and errant companies, he said.

The IFCI chief said that assistance of private detective agencies in tracking down the movement of the diverted funds was often resorted to by lending institutions in other countries.

FIs feel that plugging the rampant incidences of diversion of funds availed of from the lending institutions by deviant borrowers would go a long way in the multi-pronged attack on tackling the high incidence of non-performing assets (NPAs).

The FIs feel that diversion of funds by promoters and the resultant time overruns, often making the projects unviable is one of the primary causes of the high quantum of their NPAs.

The combined NPAs of three leading FIs — IDBI, ICICI, IFCI — as on March 31, 2001 stood at Rs 15,293 crore against Rs 15,737 crore at the end of the previous fiscal.

The other reasons for the NPA build-up were the industrial slowdown, competition arising from gradual integration of global markets and reduction in Customs duties leading to cheaper imports.

Project implementation had also been hampered due to the inability of promoters to raise equity from the market due to bearish conditions. Dissension among promoters and non-continuity at top levels had been cited as other causes for the high NPA levels of the term lending institutions.

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