Fear of 3Cs either red herring or exaggeration behind which bankers take shelter to not protect depositors’ interest: Ex-RBI governor Urjit Patel

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Published: July 24, 2020 6:55 PM

How can more financing for essentially a restructured account be considered less serious than flagging an account as an NPA early in the life cycle of a loan, he asks.

Patel makes these remarks in his book “Overdraft: Saving the Indian Saver” in which he talks of banking crisis.

The fear of the 3Cs – CBI, CAG, CVC – seems either a red herring or an exaggeration behind which bankers take shelter to not do the right thing – that of protecting depositors’ interest, says former Reserve Bank of India governor Urjit Patel. He also says that the government is responsible for ensuring adequate capital for banks that are under its ambit on a durable or sustainable basis.

Patel makes these remarks in his book “Overdraft: Saving the Indian Saver” in which he talks of banking crisis and tells how he worked out the ‘9R’ strategy during his tenure when the problem of unsustainable bad debts or NPAs in the Indian banking sector was at its peak. He says he does not wish to write about passing matters in his book but “address correctly” some issues of economic outlook and policy that are important for the nation’s destiny.

“The dominant owner pre-2014 didn’t question risk controls in GBs (government banks) even as it received significant dividends. A number of GBs did not have senior management in place, and governance suffered. This is a perennial shortcoming on account of bureaucratic inertia and political meddling,” Patel says in his book, which was released on Friday.

Same is the case for these banks’ board of directors, he says, adding it is common knowledge that this has traditionally been a placeholder for sinecure to political supporters.  “Key committees of the board, like the audit committee, have suffered from both inadequate membership, as seats go unfilled, as well as paucity of talent/ domain knowledge to carry out fiduciary responsibilities to the level that is required and expected,” he writes.
Patel served as the 24th governor of RBI from September 2016 to December 2018.

He says that government banks have “argued incessantly over the decades – with mindspace capture of authorities and others – that an important reason for not calling out problem accounts in a timely manner as non-performing, hence legitimising ever-greening, is that the government’s vigilance agencies (the 3Cs – the CBI, the CAG and the CVC) would raise questions or initiate investigations and invite a form of retribution regarding why and how were these loans made”.

While, Patel feels that the explanation may have merit, he also finds it puzzling at two levels.  “GBs aren’t shy of designating personal loans and advances to small borrowers as NPAs, and liquidating their security without fuss; and shouldn’t GBs be more concerned about queries from the 3Cs when the loan size to struggling corporates is actually getting larger at a time when the latter’s debt-servicing capability is obviously declining?”

How can more financing for essentially a restructured account be considered less serious than flagging an account as an NPA early in the life cycle of a loan, he asks.

“It would seem that the fear of the 3Cs is either a red herring or, at the least, an exaggeration behind which bankers take shelter to not do the right thing – that of protecting depositors’ interest,” he says in the book, published by HarperCollins India.

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