There is a certain irony in that the day the Chennai-based Indian Bank announced its results for its fourth quarter, making a net profit of Rs 394 crore, a 63 per cent jump over the same period the previous year, its former chairman and managing Director, M Gopalakrishnan was sentenced to 14 years in prison sentence . His crime was that he colluded with some of his colleagues indulging in activities which had resulted in a loss of Rs 8.67 crore to the Bank.
Gopalakrishnan in the early 1990s was a rock star of banking. He was a non-traditional banker and his methods were unconventional. Indian Bank?s identity at that time was synonymous with Gopalakrishnan. He genuinely believed in supporting the underprivileged.The former chairman used to draw flak constantly for his leniency towards a few film and media groups. He had also supported ventures floated by personalities connected with the film industry.
Under him Indian Bank saw opportunities in real estate, private healthcare and education. These were seen as unconventional ventures then and raised a lot of eyebrows. The very nature of these activities meant that they would take a long while to yield returns. Predictably, the bank was not able to recover all its dues. Gopalakrishnan had no regrets supporting these ventures. On lending to educational institutions, he always said that but for his daring decisions the state would not have seen an explosive growth of engineering and medical colleges.
The ex chairman had a very high profile and did not shun publicity. He got several extensions after his date of retirement which made everyone believe he was close to the powers that be. However he was also closely watched by the RBI which had been frowning at his lending approach. It has been warning Indian Bank since 1992 to show restraint in credit expansion. At one point of time, it even curbed the CMD?s power in the matter of discretionary sanction.
One must remember it was the era of directed lending. Those in power believed in picking up the phone and telling the bank chairman to loosen the purse strings. Many banks? profligacy started during this phase. So if one digs into the history of nationalised banks, many skeletons are bound to come tumbling out. Non appraisal based lending, non merit lending were all the norms of those days.
Sure enough, when Gopalakrishnan finally retired in 1995, the bank was not in the pink of health. It had an extremely high level of non-performing assets of about 32 per cent. A CBI enquiry was slapped on the Bank by the short-lived BJP government, into losses incurred due to alleged favouritism to one of its clients, East West Airlines.
Many of Indian Bank?s woes stemmed from what was seen as its non-traditional customers. For instance, the bank had an exposure of over Rs 350 crore to MVR Exports, owned by an NRI, M Varadarajulu, who was perceived to be close to the then chief minister Jayalalithaa. Since the group had failed in some of its businesses, many of its letters of credit devolved on the bank. In his defense Gopalakrishnan said that the MVR group had won export awards in the past and so how could it be wrong to lend them. Gopalakrishnan and his senior colleagues were arrested in 1996 . And have now been convicted. In all this nobody believes that Gopalakrishnan benefited personally. He took his role of people?s banker far too seriously.
Once the banking sector was liberalised and opened up, it was believed that risk based management assessment systems will be in place. Proper due diligence would be done and lending to cronies would stop. But does it really happen anywhere in the world? Banks did lend to Enron. Major banks have supported companies like Maytas and Satyam. We were told to believe in the western model. Then two major private sector banks in the US went bust. Is the quality of portfolios anywhere better today than they were 15 years ago?
sushila.ravindranath@expressindia.com