Modi government assurance to allay bankers’ persecution fear to help credit cycle

Panic gripped as lenders feared large-scale scrutiny by enforcement sleuths, who in their quest to tear up banking scams by the root, could consign even genuine decisions to dust.

Published: 24th August 2019 11:27 PM  |   Last Updated: 25th August 2019 10:23 AM   |  A+A-

Bank, Banks

For representational purposes (File Photo | PTI)

Express News Service

HYDERABAD: Around this time last year, bankers were in an existential threat. A handful of senior banking staff were under the radar of investigating agencies for questionable lending practices, but hell broke loose when six officials of Bank of Maharashtra including its serving CMD Ravindra Marathe and Executive Director Rajendra Gupta were arrested by Pune police.

Panic gripped as lenders feared large-scale scrutiny by enforcement sleuths, who in their quest to tear up banking scams by the root, could consign even genuine decisions to dust. An SOS was soon dispatched to the government. 

Arun Jaitley, the Minister for Finance that time was unwell — Piyush Goyal was standing in for him — but walked an extra mile connecting through a video conference to allay their fears.

“During the interaction, conveyed that it (the arrest) was state agencies going after bankers for their alleged role and not based on some random allegation,” Mrytunjay Mahapatra, CEO & MD, Syndicate Bank told TMS. 

It’s been a year since, but bankers even now are sitting tight on credit fearing unwelcome calls from agencies later.

The perceived fear psychosis prompted Prime Minister Narendra Modi to give assurance right from the ramparts of Red Fort on August 15 and was duly followed up by his deputy and Finance Minister Nirmala Sitharaman, whose repeated interactions carried home one key point: That all loan accounts cleared by respective banks’ internal steering committees and disciplinary authorities will not be reopened for scrutiny.

“This certainly is a confidence-building measure for banks,” Mahapatra said, but quickly added that “lending fearlessly doesn’t mean lending recklessly.”

Rising bad loans and frauds forced banks to strengthen internal practices on big and small ticket loans, which need mandatory credit appraisal and risk management committee approvals. This is a standard operating procedure, but one that’s causing the delay. “Even though processes are strong, decisions are somewhat delayed. But not all credit proposals are dismissed just because we are shying away,” said a senior banker. 

He added that more than fresh loans, stagnation is seen in existing accounts with revenue flow under stress.

“There are cases of genuine business slowdown and timely credit access prevents a collapse, but unlike in the past, lenders aren’t comfortable with unsecured credit,” he said. Conceding with the view, Mahapatra added, “Several times, delays are due to information asymmetry when multiple banks are involved in lending to one account.” 

According to a former banker in south India, extensive risk assessment of borrowers is adding to loan dismissals.

“Earlier, we relied on third-party due diligence, but now even balance sheet reviews and risk assessment are thoroughly checked internally too. Even a slight blip noticed by assessing officers leads to disapproval, as staff want to steer clear of controversies,” he explained, agreeing that bankers aren’t businessmen and their lack of technical know-how stops credit flow to even good and needy businesses. 

Precisely to quell fears, and clear uncertainty, the Department of Financial Services (DoFS) asked banks’ branch managers to hit the road in search of ideas. The nation-wide exercise held between August 17 and 18, engaged over 1.5 lakh branch managers — the first point of contact for borrowers — to self-assess and make meaningful suggestions.

Debashish Panda, Additional Secretary, DoFS last week said, concerns and consultations from the bottom-up process will soon be discussed at the national level and a roadmap will be rolled out soon. Given the Finance Ministry has extended a shoulder to lean, the government’s clean banking agenda should kick-start credit cycle anytime from now.

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