The Reserve Bank of India (RBI) has flagged potential risk management issues at PTC India Financial Services (PFS), pointing to irregularities in loan sanction norms and concentration of power with a former senior official.

What Happened: The RBI’s Risk Assessment Report (RAR) and Inspection Report (IR) on PFS, dated March 31, 2022, were delivered to the company on August 17, amid ongoing scrutiny for alleged corporate governance lapses, according to a Moneycontrol report.

The report from the central bank reveals deeper operational issues at PFS, beyond the corporate governance lapses. These issues are currently being investigated by the RBI, the Securities and Exchange Board of India (SEBI), and the Ministry of Corporate Affairs (MCA).

The RBI’s examination revealed discrepancies in 15 sample files. These included instances of PFS not adhering to due processes in loan sanctions and disbursements, non-compliance with credit terms, and mismatches between PAN and Aadhaar in some customer validation documents.

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Why It Matters: PFS, the non-banking financial subsidiary of PTC India, partially owned by state-run power companies, has been embroiled in controversy since January 2022, following the resignation of three independent directors over corporate governance lapses.

A significant discrepancy noted by the RBI was the sanctioning of a revolving corporate loan of ₹250 crore on June 21. The borrower was required to provide a certificate of fund utilization, which was missing in two of the loans scrutinized by RBI.

The central bank has instructed PFS to present the report to its board within 60 days and devise a time-bound risk mitigation plan. The company is yet to discuss the report with its board or respond to the RBI with a board-approved, time-bound plan outlining its strategies to mitigate risk and address the observations made in the report.

The presence of state-run power companies among PFS’s stakeholders makes the matter even more critical, as lapses in governance can have far-reaching impacts on the public sector.

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Disclosure: Artificial intelligence was used as a secondary aid in the writing of the story.