The arrest, on Monday, of former IDBI Bank chairman Yogesh Aggarwal, along with several top officials, by the CBI is unfortunate. Enough research exists on how bank lending grinds to a halt after any vigilance action, leave alone the arrest of a former chairman, and that is why former RBI Governor Raghuram Rajan had cautioned against targeting bank officials, pointing out it could result in an environment in which bankers stopped lending altogether. While it is likely bankers such as Aggarwal have lent without adequate due diligence, any probe must also investigate the directives to them, if any, from concerned ministers and bureaucrats like those in the finance and aviation ministries. It is no secret that industrialists have thrived on their political connections helping them win both licences and loans. As Rajan had pointed out, many of them are freeloaders who have no intention of returning the money they have borrowed; they have been able to get away purely on the strength of their clout in the government. If industrialists have been able to flout rules with such impunity, it is only because they have the backing of those in authority.
In the aviation sector, the favours bestowed to select airlines, sometimes at the cost of Air India, are no secret. In the Kingfisher episode, similarly, it is odd there has been, so far, no mention of any politician and it is hard to believe ministers/bureaucrats played no role in the sanctioning of loans to Kingfisher Airlines. The former IDBI Bank chief has reportedly been arrested for accepting the Kingfisher brand as collateral even though the airline was already in trouble, but surely it is odd neither RBI nor the finance ministry thought it fit to take action at the time or even afterwards? Also, it is not clear whether the IDBI Bank loan was part of a larger bailout to save the loans given by all other banks to the airline.
Given it is their signatures on the loan, it is easy to arrest bankers for giving loans, but what about politicians who get away scot-free because they’re merely giving verbal instructions—what in jest has been called phone-banking. Along with the bankers, the concerned ministers and bureaucrats who have interfered in lending decisions must also be probed. Nor is it clear that a solution has been found to the very real issue of how a banker—normally from a middle-class family—is to deal with political/bureaucratic pressure to give loans, either to crooked industrialists or as part of government policy priorities. The consequences of standing up can be quite harmful and an adverse remark in the annual confidential report can mar a full career, even a suspension cannot be ruled out. Whether the Banks Board Bureau, tasked with solving such problems, has come out with a workable solution will be evident only if the arrest of IDBI Bank officials does not result in a further slowing of bank loans to industry.