Bank NPAs: The Modi government has decided to protect honest bank officers from vigilance cases for their bonafide decisions. It is considered crucial for the success of finance minister Nirmala Sitharaman’s push to expand the bank credit to revive a slowing economy. Despite several steps taken by the Union government and Reserve Bank of India to expand the credit to boost consumption, senior officials of public sector banks were investing heavily in government papers like treasury bills (T-bills) and (G-Secs), considered the safest investment options as they are backed by a sovereign guarantee. Though this strategy helped them to meet their credit and investment targets, it also deprived the economy of necessary liquidity that was essential for boosting consumption.
“To support decision making and to prevent harassment for genuine commercial decisions by bankers, CVC has issued directions,” finance minister Nirmala Sitharaman told reporters after chairing a meeting with the heads of PSU banks on Thursday evening at Vigyan Bhawan in New Delhi.
These internal advisory committees would classify a case as vigilance or non-vigilance and advisory boards that will be set up will conduct preliminary examination to ascertain whether a case of bank loan turning into NPA was the result of a criminal conspiracy or a bonafide commercial decision.
These committees would recommend future course of action for large fraud cases involving a sum of Rs 50 crore or above.
“This will instill a sense of protection among bankers from prosecution for genuine decisions and promote lending. The heads of PSU banks have expressed their resolve to take prudent commercial decisions without any fear now,” said the government in a statement.
As earlier reported by the Financial Express Online, more than a dozen former and serving officials of Reserve Bank of India have been facing inquiries by the central bureau of investigation and enforcement directorate. They have been questioned the loan approval decisions taken 10-20 years ago when they were a part of boards of public sector banks.
This list includes at least four former deputy governors of the Reserve Bank, including KC Chakrabarty, who had to approach Delhi High Court last year to travel abroad as a lookout notice was pending against him in a loan NPA case.
The situation had further worsened for the top management of PSU banks following the exposure of mega loan scams involving high profile industrialists such as liquor baron Vijay Mallya and diamond baron Nirav Modi and Mehul Choksi.
In 2018, the CBI arrested 8 senior officials of Punjab National Bank during its probe of over $2 billion scam involving Nirav Modi and Mehul Choksi.
These incidents and subsequent vigilance action instilled a sense of fear among the top leaders of PSU Banks and they turned to secure government papers to park the surplus money available with the banks. However, all was indeed not well with the functioning of public sector banks.
It was the arrest of SK Jain, CMD of Syndicate Bank, by the CBI in 2014 in a loan scam involving Bhushan Steel and Prakash Industries, that exposed the true level of involvement of highest level of bank officials in grant of high-value loans that later turned into NPAs.
These incidents and rising NPAs of scheduled commercial banks that touched a record high of Rs 9.6 lakh crore in 2017, affected the lending, both to the industry and to the retail borrowers.
“Nobody is willing to land in any controversy. After all, any decision to give loan involves certain risks and the decision may turn out to be a wrong one in the future,” a former RBI official had earlier told Financial Express Online.
“Top officials of public sector banks are afraid of taking risks,” he had said.