Bank NPAs: The fear of post-retirement harassment has forced PSU chiefs to turn to the government securities that led to the crowding out of private investment.
Non-performing assets (NPAs): Prime Minister Narendra Modi’s biggest challenge to kick-start a slowing economy in his second term has become even more daunting because of the low investment by the private sector. GDP growth in the fourth quarter of the last fiscal year came down to a five year low of 5.8%, causing concerns among the policy makers. The sharp fall was attributed to a deep cut in the government spending during the election process as the decision making process came to a halt. However, weak private investment had remained a challenge throughout Prime Minister Modi’s first term (2014-19). And the problem has become even more acute in recent times as sveral public sector banks have opted for safe investment options like government bonds to avoid any chance of post retirement harassments at the hands of law enforcement agencies. But the trend also resulted in reduced and delayed lending to private sector.
Banking industry insiders say that top officials of public sector banks are afraid of taking decisions as they may be hauled up even after retirement if the decisions taken by them result in creation of NPAs.
Modi government has faced a lot of criticism for an unprecedented level of non-performing assets of public sector banks that touched Rs 10 lakh crore last year before cooling down a little in recent times. It also faced vehement criticism from the opposition following the flight of big borrowers like liquor baron Vijay Mallya and diamond baron Nirav Modi and Mehul Choksi from the country.
These developments led law enforcement agencies to thoroughly probe the role of top bank executives in the grant of big loans that turned into non-performing assets (NPAs).
“Almost a dozen past and present senior officers of the Reserve Bank of India have been facing questioning by the law enforcement agencies for the decisions taken by them 10-20 years ago when they served on the boards of public sector banks,” said a former RBI official.
“Nobody is willing to land in any controversy. After all any decision to lend involves certain risks and the decision may turn out to be a wrong one in the future. And top officials of public sector banks are afraid of taking risks,” he told Financial Express Online.
He said four former deputy governors of Reserve Bank of India have faced questioning at the hands of law enforcement agencies in the cases related to NPAs.
KC Chakrabarty, a former deputy governor of the Reserve Bank of India and former CMD of India’s second largest public sector bank – Punjab National Bank – had to approach a court of law and later Delhi High Court to travel abroad as a lookout notice was pending against him in a loan default case.
“Because of rising NPAs, public sector banks are not willing to take risk by lending to private companies. Investment in government papers is considered the safest option by the top management of public sector banks as they don’t want to be troubled for their decisions after their retirement,” said the former Reserve Bank official while requesting not to be named.