Bankers Are Not Guilty

One cannot take out banker's discretion while lending: RBI Governor-Hindu Business Line

SATYANARAYAN IYER

          MUMBAI, AUG 5:  

The Reserve Bank of India Governor, Raghuram Rajan, said that one cannot take out banker’s discretion while lending, in reference to the recent Syndicate Bank issue where the Chariman of the bank has been arrested for allegedly asking for money to raise the loan limit for a few corporates.

Rajan also cautioned against extrapolating the issue to the entire public sector banking system.

“I would emphasise that one should not extrapolate from this for the entire public sector banking system and assume that the entire problem in the public sector banking system is because of criminality rather than because of other factors,” he added.

Pricing of loans

When asked if the RBI should come out with recommendations on pricing of loans to curb quid-pro-quo in lending, Rajan said that this would be tantamount to taking the banker out of the equation.

“The whole point of banking is taking risks and using discretion in taking those risks… When there is banker’s judgment, you have to be careful about what genuine banker judgment is and what non-genuine banker judgment is,” he added.

He added that the answer is not to make all loans uniform based on some observable characteristics because then you might make very very bad decisions because you are not using your intuition on the character of the borrower.

“So, we have to live with this. This episode that is alleged to have happened points to the fact that we have to look again at the governance of the public sector banks and understand the deficiencies there and try and improve it,” Rajan said.

AIBEA demands stern action against top executives of banks-Hindu Business Line

L N REVATHY

COIMBATORE, AUG 4:  

The All India Bank Employees' Association has urged the Government to frame a set of rules and conduct regulations applicable to Executive Directors and Chairman and Managing Director of banks.

"If there be a rule for the entire staff of the bank, why not for the top executives?” asked the General Secretary of AIBEA C H Venkatachalam, adding “what is sauce for the goose must be for the gander too”.

The association's plea has come close on the heels of the arrest of S K Jain, CMD of Syndicate Bank, for alleged bribery.

Demanding stern action against corrupt executives, Venkatachalam said: “This is not the first time that top executives of banks seem to have indulged themselves in. Earlier, in the 90s, the CMD of UCO Bank was arrested for involvement in the Harshad Mehta scam. Some months ago, a top executive of State Bank of India was reported to have accepted bribe, but in the name of departmental action, the whole issue was buried. And in the case of United Bank of India, the then CMD was allowed to voluntarily retire, when huge sums of advances were reported to have turned bad due to wrongful decisions of the top management of the bank.”

He further pointed out that when the rules for taking action against ordinary bank employees and officers for any wrong doing or misconduct is well-defined, there were no clear rules for initiating action against CMDs and EDs, stressing the need for framing rules for top executives too

Bank union seeks action against errant credit approval committee members

MANGALORE, AUGUST 4:  

All-India Bank Officers’ Confederation (AIBOC) has said that credit approval committee members in public sector banks should be held responsible for any violation in the norms.

The arrest of the Chairman and Managing Director (CMD) of Syndicate Bank on charges of corruption exposes the lacuna in the committee system of credit sanctions, according to DN Prakash, Vice-President of AIBOC and President of Corporation Bank Officers’ Organisation (CBOO).

He told Business Line that the decision on large loans is taken by the credit approval committees of the banks.

While the CMDs of the banks are Chairmen of the committees, Executive Directors and General Managers are committee members. When a CMD pushes a proposal, other members will not have the courage to say no. Once the committee decides, none of the members is responsible for anything, he said.

The committee members should be made accountable for any lapses on their part by overlooking the laid-down guidelines or the norms. Committee members should be accountable for any violations in the existing norms, he said.

Prakash urged the government and the RBI to review the committee system of credit sanctions at the top level in banks. He said the government should set up a transparent mechanism for selection to the top posts in public sector banks.

The selection should be conducted by an independent agency such as UPSC, he said. The names of the candidates selected for interview and those finalised should be put on the websites of the independent agency concerned and the Finance Ministry, he added.

Syndicate Bank fraud: Jain helped hide Rs 100-cr NPAs-Businessstandard 

Suspended chairman S K Jain allegedly took bribes to prevent loans being termed non-performing

S K Jain, suspended chairman and managing director (CMD) of Syndicate Bank, had allegedly prevented loans of over Rs 100 crore on Bhushan Steel and Prakash Industries from being declared as non-performing assets (NPAs), agency sources said on Monday.

Jain was suspended by the government on Monday, two days after the Central Bureau of Investigation (CBI) arrested him for allegedly accepting a bribe of Rs 50 lakh to enhance the credit limit of some companies. Financial Services Secretary G S Sandhu said the finance ministry received a preliminary report from CBI, based on which he was suspended.

"We have suspended him (Jain) and two executive directors (EDs) have been given charge of the bank as an interim arrangement," Sandhu said. M Anjaneya Prasad and T K Srivastava are the two EDs of the bank.

CBI has also alleged Jain used to negotiate directly with the companies on the bribe amount and once the deal was struck, he used the hawala channel to receive the money, the sources said. They alleged that once the bribe amount was agreed upon, the company used to pay a hawala operator who forwarded the payment to other businessmen who finally made the payment to brother-in laws of Jain in Mumbai; they too have been arrested.

CBI sources said Jain had allegedly taken Rs 50 lakh as bribe from Bhushan Steel for not declaring loans of nearly Rs 100 crore as NPAs. The sources said a similar deal was struck with Prakash Industries as well, but the alleged bribe is still being traced.

They said the bad loans for Prakash Industries allegedly were about $20 million (approximately Rs 120 crore).

The sources said the agency has been tracking the conversations of Jain for nearly six months and acted when it got clear indication of an alleged bribe exchanging hands. They said CBI is still looking for two alleged middlemen — realtor Purushotam Totlani and Neeraj Singal, vice-president and managing director of Bushan Steel.

No reaction was available from Bhushan Steel and Prakash Industries on the issue.

RBI starts inspection in Syndicate Bank case The bribery episode at Syndicate Bank throws up ‘governance’ issues at some public sector banks, says Raghuram Rajan-LiveMintMumbai: The Reserve Bank of India (RBI) has initiated an inspection at Syndicate Bank Ltd following allegations that the chairman and managing director of the bank had taken bribes to sanction loans. 

The bribery episode at Syndicate Bank throws up “governance” issues at some public sector banks, RBI governor Raghuram Rajan said on Tuesday. He, however, cautioned against “extrapolating” the incident to the whole public sector banking space. “Inspection of Syndicate Bank is going on but one has to be careful about extrapolating it to other banks. 

It is important to ensure that a full investigation is done and the investigation agencies are doing it but a balance has to be maintained. While the culprits must be brought to book it does not have to be a witch hunt which impacts credit appraisals,” Rajan said in a post credit policy interaction with the media. Syndicate Bank chairman and managing director (CMD) S.K. Jain was arrested by the Central Bureau of Investigation (CBI) on Saturday for accepting bribes to extend credit facilities to companies. 

Responding to a question on whether the RBI needs to keep a stronger check on pricing of loans in order to ensure that discretionary powers of bankers are kept in check, Rajan said that, to some extent, bankers have to be allowed to make decisions based on judgement. “We cannot take bankers out of the equation. Banking is such that bankers and borrowers have a certain chemistry. that is what relationship banking is all about.

 It helps bankers to understand whom to give how much loans and whom not to,” Rajan said. “If we take bankers out of the equation we might as well have machines in their place like credit scores. It is hard for us to do. Banking is also about judgment. We have a lot of highly qualified and highly credible people working in public sector banks, we have to give them the space to work because they are working for the nation,” Rajan added. 

On Monday, Jain who is in CBI custody, was suspended from the bank by the government. The bank’s stock had fallen 9% on Monday. On Tuesday, the bank assured all its stakeholders that the fundamentals of the bank continue to be robust and bank is functioning normally. At 1:53pm, Syndicate Bank was trading at Rs.134.40 on BSE, down 0.04% from previous close while India’s benchmark Sensex Index down 0.50% to 25,609.62 points.
Read more at: http://www.livemint.com/Industry/TGFPhzxcDQXsKZP3r612oK/RBI-starts-inspection-in-Syndicate-Bank-case.html?utm_source=copy