1. PRESENTATION on 28-05-2015
by
K. Ram Mohan
Chief General Manager
Punjab National Bank

2. VIGILANCE ANGLE BROAD DEFINITION
Although formulation of a precise definition is almost
impossible, generally a vigilance angle could be perceptible
in cases characterised by:
•commission of criminal offences like demand and
acceptance of illegal gratification, possession of
disproportionate assets, forgery, cheating, abuse of official
position with a view to obtaining pecuniary benefits
advantage for self or for any other person;
•irregularities reflecting adversely on the integrity of the
public servant;
•lapses involving gross or wilful negligence, recklessness,
failure to report to competent authorities, exercise of
discretion without or in excess of powers/jurisdiction, cause
of undue loss or a concomitant gain to an individual or a set
of individuals/a party or parties and flagrant violation of
systems and procedures.

3. VIGILANCE ANGLE
Vigilance angle is characterized by any of the
following:-
•Commission of criminal offences like demand and
acceptance of illegal gratification
•Possession of disproportionate assets
•Forgery
•Cheating
•Abuse of official position with a view to obtaining
pecuniary benefit.
Irregularities reflecting adversely on the integrity of
the public servant

4. Lapses involving Gross negligence
1. Lapses involving Recklessness
2. Lapses involving failure to report to competent
authorities, exercise of discretion/powers
without or in excess of powers/jurisdiction.
3. Lapses involving cause of undue loss or
concomitant gain to an individual or a set of
individuals/a party or parties
4. Lapses involving flagrant violation of system
and procedures.

5. VIGILANCE PERCEPTION
•Vigilance activity in Banks forms an integral part of
managerial functions and such activity is not intended
to reduce but to enhance the level of managerial
efficiency.
•Every loss caused to the bank does not become the
subject matter of vigilance enquiry. However,
motivated and reckless decisions should not be
ignored.
•Distinction has to be drawn between malafide and
bonafides.
•While bonafides could be accepted as a normal part
of business and ignored, malafide has to be viewed
adversely and dealt with under the extant disciplinary
procedures.

6. PREVENTIVE VIGILANCE
Santhanam Committee, while outlining the
preventive measures, that should be taken to
significantly reduce corruption, had identified four
major causes of corruption, viz. (i) administrative
delays; (ii) Government taking upon themselves
more than what they can manage by way of
regulatory functions; (iii) scope for personal
discretion in the exercise of powers vested in
different categories of government servants; and
(iv) cumbersome procedures of dealing with
various matters which are of importance to
citizens in their day to day affairs.

7. LET US NOW SEE SOME OF THE
IMPORTANT ASPECTS OF
PREVENTIVE VIGILANCE STEPS
UNDER VARIOUS ASPECTS OF
BANKING AND FINANCE.

8. A-1 ACCOUNT OPENING
1. Ensure that while opening deposit accounts, related
documents are got completed in the presence of authorized
official from the Bank and handing over the related documents
to the middle men is avoided. Ensure that the account opening
formalities are completed at the Bank premises and no
document is allowed to be taken out for execution.
Independent verification of address in all accounts is an
integral part of the procedure for opening of account. In case
the registered letter sent is received back undelivered, extra
caution should be exercised while permitting transactions.
2. Ensure that in all new accounts, at least one photograph of the
account holders are obtained for all categories of accounts.
3. Refund orders, dividend/interest warrants may not be accepted
in newly opened accounts if the related account is opened
subsequent to the date of issue of such instruments as
appearing on the face of the instrument.

9. REMITTANCES
RTGS, NEFT, Internet Banking, SWIFT – Salient features and
compliance of guidelines :
1. Affix transparent plain cello tapes on all drafts and Fixed Deposit
Receipts at the space meant for amount in figures irrespective of
the amount.
2. Ensure that no draft, cash order, TPO, Telegraphic Transfer and
RTCs for Rs. 50,000/- and above are issued against receipt of
cash. These guidelines also prohibit payment of cash against such
instruments.
3. Ensure to use rubber stamp mentioning that the draft is singly
signed as it is below Rs. 25,000/- at the space meant for second
signatory, on all drafts below Rs. 25,000/-.
4. While issuing drafts, holes are punched with the help of punching
pliers in the appropriate cages provided on the left and right
sides, taking care that the hole does not extend to the adjoining
cage.
5. Examination of various payment instruments is part of the system
and the instruments should be paid after verification under ultra-
violet lamps & magnifying glass.

10. B-1PRE-SANCTION STAGE
The major reason for the advances being turned Non-Performing Asset is
improper and inadequate pre-sanction appraisal. Some of the important
DOs and DON’Ts at the pre-sanction stage are as follows:
1. Authenticated data about financial standing of the parties is kept on
records and Credit reports/credit opinion on borrowers/guarantors as
well as no objection certificate is received, wherever required.
2. Wherever prescribed, audited Balance Sheets are obtained from the
borrower. In other cases Balance Sheets should be verified from the
genuine books.
3. Borrower’s antecedents are verified to judge his intentions, capacity,
potential and managerial capabilities etc. in a proper and meticulous
way.
4. Ensure that the project is technically feasible and economically viable.
5. Pre-sanction inspection is made properly and objectively, cross
checking the applicant’s claim
6. Ensure that detailed and warranted enquiries are made into Group
concerns/associate concerns/Associates, etc.

11. 7. Borrower is also assessed on the basis of 3 Cs – Character, Capital
and capacity.
8. Actual credit requirements are assessed based on projections in
accordance with the prescribed norms and all government/RBIs
norms/stipulation are properly adhered to.
9. Security offered is adequate and proper and is valued properly.
10. Administrative clearance is obtained from the controlling authorities,
if required.
11. Credit reports and limits are renewed at prescribed intervals and
existing defects/irregularities are removed.
12. Projected level of Current Assets and Current Liabilities are
reasonable and in tune with actual requirements.
13. Non fund based limits carry the risk of devolvement and as such
these should be assessed more judiciously.
14. In case of existing borrowers, all the parameters considered for
earlier sanction should be properly reviewed and compared with
actuals.

12. 15. Cases of over accommodation are not put up to the authorities for
confirmation along with the renewal proposal but should be put up
to the authorities as per extant guidelines available whenever
discretion has been exceeded.
16. Pre sanction inspection/visit is made at the site/party’s
office/premises to have a first hand judgement about party’s credit
worthiness.
17. Industry-wise analysis to compare operational parameters/
standards is done in respect of large borrowers.
18. It should also be ensured that the party (especially in case of Ltd.
companies) must be competent to contract and be authorized by
proper resolution to apply and avail loan from the bank.
19. It should be meticulously ensured that party is not overstating the
price of asset to be financed.
20. Ensure to mention stipulation like strengthening the capital base of
the party in case the capital base of the party is weak and such
stipulations are complied with before disbursements.
21. Ensure that takeover guidelines are meticulously followed.

13. 22.Ensure that in case of Borrower availing credit facilities
from other Banks in consortium/ syndication/ multiple
banking arrangement bring required No Objection
Certificate from them.
23.Ensure that a clause is incorporated that the borrower
would require NOC from the Bank for availing credit
facilities from other Bank/Financial Institutions, further
expansion of business, taking up a new business activity
of setting up/investing in subsidiary whether in the same
business line or unrelated business.
24.Old accounts need more closure scrutiny as the first
generation owners are replaced by the next generation.
In such accounts status of the customer should more
critically be analyzed while renewing the limits

14. B-2 SANCTION STAGE
1. Ensure that powers are exercised in a
judicious way.
2. All the RBI/Bank’s guidelines are
followed.
3. Ensure that proper replies to all the
queries raised have been received.
4. Project under consideration is bankable
and activity to be financed is approved
one.

15. B-3 DOCUMENTATION STAGE
1. It should be ensured with precision that documents are executed as
per terms of sanction.
2. In case E.M. is to be created, it is also to be ensured that original
title deeds are placed on record along with non-encumbrance
certificate from bank’s approved advocate.
3. Personal guarantee wherever these exist must be obtained.
4. Insurance cover, with usual bank clause to guard bank’s interest,
must be obtained when such term exist.
5. In case of limited companies, charges must be registered with ROC
for each facility.
6. Balance confirmation letters are obtained on periodic prescribed
intervals.
7. In case of consortium/ syndicated advances, guidelines laid down by
the bank to sanction, documentation and follow up must be adhered
to and minutes of consortium meeting must be kept on record.

16. B-4 DISBURSEMENT STAGE
1. Disbursement of advance should only be made after
proper sanction, documentation and necessary
approval of authorities.
2. Deviation from terms of sanction can only be permitted
with proper permission of the sanctioning authority.
3. Disbursement should only be made direct to suppliers
as per terms of sanction.
4. Operation in cash credit/other borrowal accounts
should be properly monitored and end use of
funds/limit must be verified for which post
disbursement inspection is very much required.
5. Diversion of funds should not be permitted.

17. 5. Operations in the accounts should be properly
monitored and drawls of Rs.50 lacs and above
in large borrowal accounts, particularly with
Working Capital of Rs.10 crores and above from
the entire banking system must be scrutinized.
6. Huge cash drawls should not be allowed and
Post Disbursement Inspection is properly done.
7. Insurance on assets is ensured.
8. Frequent excess drawings disproportionate to
the limit sanctioned/actual requirements should
not be allowed and necessary confirmation
wherever required is obtained as per extant
guidelines available.

18. B-5 FOLLOW-UP STAGE
1. Annual reviews of accounts should be done.
2. Stock inspections are done properly and wherever stock audit is
prescribed, the same is done invariably.
3. Follow up of recovery of installments in term loans is made as and
when they fall due and over dues are not allowed to accumulate.
4. Credit reports on borrower/guarantors are updated periodically.
5. Documents are not allowed to get time-barred
6. Irregularities pointed out in the inspection/ audit reports are properly
rectified and it is to be ensured that such irregularities do not recur.
7. Review of account is done as a post disbursement follow up
measures to detect warning signals and to initiate necessary
corrective measures but not in a routine manner solely with a view
to remove the account from the list of un-reviewed accounts.
8. Incipient sickness is detected in time and wherever it is detected,
action is taken and things are not allowed to drift.

19. C-3 FOREIGN EXCHANGE GENERAL
1. Invariably ensure release of foreign exchange within ECM limits and keep a
record of part releases.
2. Ensure verification of purpose of inward remittance, if than USD 10000.00
3. Non- resident accounts must be opened as per Bank guidelines. Currency
notes/Traveller cheques must be deposited by the depositor himself.
4. Ensure that the identity of depositor is verified by the documents prescribed.
5. Fixed deposit receipts should always be handed over personally or be sent to
the depositor directly against acknowledgement.
6. Loans against NRE/FCNR (B) deposits to third parties should be granted when
the depositor himself executes the loan documents in the presence of Bank
officials and a witness acceptable to the Bank. Advances to third parties should
not be granted on the basis of power of attorney.
7. Any loan account should have been adjusted with the funds from local sources
of NRIs, if the interest has been charged as per RBI guidelines.
8. In case of acceptance of Foreign contribution under Foreign Contribution
(Regulation) Act, 1976, ensure that prior permission from the Government of
India has been received by the recipients before actually affording credits to
their Accounts.
9. Ensure that the accounts are opened with the funds received from abroad and
received through normal Banking channels.

20. WHAT EVER SAID UNDER PREVENTIVE
VIGILANCE WILL BECOME ISSUES OF
VIGILANCE, IF A VIGILANCE OVERTONE IS
PERCEIVED IN A CASE.
SO WHY ALLOW A VIGILANCE CASE,
WHEN WE HAVE AMPLE
OPPORTUNITY TO PREVENT
OCCURANCE OF SUCH AN ACT OR
OMISSION.

21. Based on our analysis of large value advance related fraud cases, I
would like to highlight following issues for closer scrutiny by the
vigilance administration in banks:
1. Holding lower rung officials accountable for frauds even though the
sanctioning of advances is usually at the level of senior
executives/Board
2. The officials at junior level should be brought under the ambit of
probe for accountability only if there is deficiency at the
monitoring/implementation level
3. Dragging in too many people in the ambit of probe not only delays
the process but also scuttles the identification of actual
perpetrators
4. Establishing accountability in all member banks even in the case of
consortium/Multiple Banking arrangements where there is common
tendency on part of the member banks to absolve themselves of
all responsibilities and squarely blame the lead bank for deficient
credit appraisal/ post-disbursement monitoring

22. •Know the essence of the vigilance function - What is
expected of you?
•Evaluate decisions against two tests – Was it for the good
of the organisation? Was it done at the cost of the public
/common good?
•Have an open and inquisitive mind - Be aware of things
that may affect the interests and good governance in your
respective organizations
•When the rest of the organisation is looking to push
business interests, focus on ensuring that ethics and
values are not lost sight of