Getting corrupt bankers important, but if it is not done carefully, has the potential to hit lending across the country.
Now that the CBI has, reportedly, registered a preliminary enquiry into the allegations of quid pro quo in the ICICI Bank case, we should get some more clarity in the matter. While ICICI Bank’s board has backed managing director Chanda Kochhar, it has not addressed the issue of the propriety of Videocon Group’s chairman giving a Rs 64-crore loan to the company he and Kochhar’s husband jointly promoted—and he exited within a few months—since ICICI Bank had given Videocon a `3,250-crore loan. ICICI Bank may not have been the lead banker in the consortium that gave a Rs 40,000-crore loan to Videocon—its main defence is that Kochhar could not have influenced the lead bank or the others—but conflict-of-interest appears to be writ large on the loan, more so since Kochhar was on ICICI Bank’s credit committee that cleared the Videocon loan.
Getting to the truth in the ICICI Bank case is important but, at the same time, the government has to ensure it does not lose control of the narrative. The history of banking shows that bankers get more cautious when there is an inquiry or police action against them. So, every action against bankers has to be well thought out, it cannot be allowed to get a life of its own, where the slightest suspicion gets converted into an inquiry/action. The banking secretary’s directive that PSU banks examine all NPAs of over `50 crore for fraud and involve the enforcement directorate or revenue intelligence if there are any violations is a good example of how the narrative that can quickly get out of control even if the intentions are honourable. Since there is no industry where all permissions have been got before a loan has been sanctioned, theoretically, every loan that has turned NPA can be termed suspicious. And, even if this rule is to be applied prospectively, is the government guaranteeing that all industry/infrastructure projects will get all their clearances on time—because if it cannot guarantee that, it is unlikely bankers will want to lend to any project till all clearances are in place.
At a time when PSU banks are already reeling under the onslaught of bad news, the last thing they need is to feel that every loan they have given in the past is under scrutiny and is potentially problematic. And, while it is easy for many in the government, and in the media, to talk of private bank NPAs being a lot smaller than those of PSU banks, keep in mind it is PSUs that, mostly, lent to industry and infrastructure. If PSU banks are to shift focus to consumer lending like their private sector counterparts, and they will if they are frightened, who will lend to industry and infrastructure—even if industry/infrastructure are to get more funding from bond markets, this will take a long time.
In this context, it is important that the government ensure any action taken against bankers be taken very carefully and certainly not be guided by any form of morality-play. A good parallel in this case would be that of demonetisation to deal a body blow to black marketers. There is little doubt it was well intentioned, but GST would have contained black money even more effectively and without crippling the economy in the manner demonetisation did. Instead of bringing in the CBI—one newspaper even talks of the ED getting involved—into banks, it would be better if a high-powered panel, including bankers, examined cases before they were passed on to the investigative agencies: whether this panel is the Banks Board Bureau or something else is a matter of detail.