Prevention to avoid cure; RBI observes lack of fraud management system in Ujjivan Small Finance

Mumbai, October 28: After the Mumbai based PMC Bank scam opened up the last month, the RBI has deviated a few modules in its inspection procedures. In its recent inspection report the apex bank has made certain observations regarding Ujjivan Small Finance Bank’s lack of fraud management system, rating methodology and categorisation of priority sector loans among many others.

 

The bank has filed initial papers to raise Rs 1,200 crore via an initial public offering (IPO) in August. "Under the condition for small finance bank licences issued by the Reserve Bank of India, SFBs will be required to list after three years of operation with a capital of Rs 500 crore or above", the statement read.

 

"It will use the funds to augment capital base and meet future requirements. Ujjivan Financial Services raised Rs 300 crore in February from a clutch of investors, including HDFC Life and Sundaram MF, in a pre-IPO placement. The the company was valued at about Rs 2,000 crore at the time of the fund raising", it added.

 

The RBI inspection was conducted between January and February 2019, for financial year 2017-18. In the papers filed with the stock exchange, Ujjivan said that RBI pointed out lack of a system to tag priority sector advances, high proportion of bulk deposits and concentration of deposits of our top 20 depositors.

 

It also observed that liability products were being offered from certain centres without RBI approval. In its draft red herring prospectus, Ujjivan mentioned RBI has pointed out deficiencies in AML, KYC protocols and lack of an independent compliance department.