NEW DELHI: To encourage public-sector banks to lend more liberally without worrying about being hauled up in future if the loans go bad, the finance ministry on Tuesday decided to exempt PSU bank chiefs from their personal responsibility to comply with RBI and CVC circulars on large-value frauds.
While the move is meant to make it easier for banks to take commercial decisions, it comes in the backdrop of dismal growth in credit offtake despite government push to kickstart the cycle of robust lending and investment necessary to ratchet up growth.
“Government has now modified its 2015 framework on large value frauds doing away with the personal responsibility of the MD & CEOs of PSBs for compliance with various prescribed timelines (by CVC and RBI),” the finance ministry said on Tuesday. According to latest available data, growth in overall credit flow from scheduled commercial banks remained subdued at 8.7% year-on-year in September 2019, though private sector banks recorded 16.5% growth.
As bank frauds above `50 crore had to be reported to investigative agencies, banks were wary of taking any big-ticket loan announcement. Bankers often complained of harassment by probing officers with little knowledge of banking practices questioning lending decisions even in cases where loans had gone sour due to low demand or external factors like delays in getting environmental clearances.