Government, courts too part of bad loan crisis: SBI chief Rajnish Kumar

Kumar explained that banks don't have the mindset of the Central Bureau of Investigation or Enforcement Directorate, and instead, lend money based on trust and paperwork.
SBI (Photo | File/Reuters)
SBI (Photo | File/Reuters)

MUMBAI:  Banks may have been billed as the bad boys of the industry for amassing a $200-billion toxic loan pile, but the government and judiciary also are a part of the crisis in the making, said Rajnish Kumar, chairman, State Bank of India.“I would say everybody is responsible — be it the bankers, the industry or borrowers, be it the government and, without inviting contempt of the court, even the judiciary has played a role in this situation,” Kumar said, adding that bankers’ delayed response, however, aggravated the NPA situation.

Speaking at an industry event in Mumbai on Monday, Kumar explained that banks don’t have the mindset of the Central Bureau of Investigation or Enforcement Directorate, and instead, lend money based on trust and paperwork. “There have been several cases with a clear breach of that trust. Now, we will trust, but we will verify. Probably that verification factor was missing,” he said.

Expressing concerns about the availability of genuine equity in businesses, he said that going forward, it would be important for banks to ensure that the promised equity is available. “The second issue has been around whether the funds given by the banks have been used for the purpose for which they were meant to. The enterprises, where the money has been used for the purpose for which the borrowing was made, are in much better positions,” he said, adding that “anyone who was just playing with the bank’s money and how much interest and stake they had in the business is again a subject matter of debate.”  

According to the SBI chairman, there were problems around consortium-lending and multiple banking systems. “Up to the mid-90s, it used to be consortium-banking and later on, because there was a complaint from the industry that it is delaying the process, we went into multiple banking. But that has not resulted in faster decision-making, it has led to more problems,” he said.

Kumar suggested limiting the size of the consortium as it doesn’t make sense to have too many banks for small loans. “We will definitely reorganise many consortia. We are looking at that kind of exercise. For up to `500 crore, I don’t do consortium lending anyway. I can take over, I can exit,” he said.
Meanwhile, Kumar observed that although some sectors were showing signs of a turnaround, the power sector remains under stress and hopes for its revival were fading.

Don’t be greedy

On Insolvency and Bankruptcy Code, Rajnish Kumar said that it has been a good step in instilling fear in promoters of losing the company, but if the bidding process is delayed just for a few hundred crores of rupees more, the entire purpose of the law will be defeated. 

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