Decisions On Loan Sanction Without Negligence And Bad Motive Must Be Protected

Following is taken from Facebook
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FM said over 6000 officers punished for bad loans..
There is a need to have look at the *Decision Making & Accountability in Banks*

Every decision in Bank has financial impact unlike bureaucratic decision.

This world accepts that a
-Lawyers can err,
-a Judge may go wrong,
-surgeon may fail,
-engineer could commit a mistake, and even
-rockets may fail to take off.
But  bankers should not err!!

But each and every decision of Banker is demanded to be perfect. So unnatural. When decisions are taken, some are bound to go wrong, yield negatives,which is not taken kindly.
No margin of error to a banker. Then who will venture to take decision?

_*We are forgetting an important effect*_
_If a hand has to to be chopped for each mistake, there will not be hands to work! We would have cut all, over a period_

Appended hereunder an excellent article from CGM, SBT. Thought worth sharing.

*Nagesh VN*
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_Don’t push bankers into indecision_
Empower them instead of making them fear punishment for actions taken years back. That’s demoralising.

Now that three of the most important stakeholders in the Indian banking landscape have spoken in favour of essentially treating ‘lending’ as the dharma and karma of bankers, it is time perhaps to revisit the entire gamut of issues connected with decision-making in credit, especially in public sector banks.

Addressing a convocation at the NIBM last week, Vinod Rai, currently chairman of the Banks Board Bureau and internationally respected for his role as the CAG, said “the cacophony of uninformed voices should not impact the decision-making process of bank executives”. About the same time, while SBI chairman and banking thought-leader, Arundhati Bhattacharya, said that lenders need to be “empowered” and not rapped on their knuckles, the RBI governor, Raghuram Rajan, put across a broader regulatory perspective that “it would be wrong to take a negative view on the lenders’ judgment on a non-performing loan after the passage of several years and linking it to the changed situation prevalent at that time”.

All three seemed to be reading from the same page of an ideal treatise on commercial banking practice. But when you come to the ground level, decision-making, especially in high-value credit, is still hampered by fear of intervention by the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI), sometimes many years after the event.

_Room for error_
Bankers take commercial decisions and could go wrong in both their judgment and assessment. It was Napoleon Bonaparte who said that, *“Nothing is more difficult, and therefore more precious, than to be able to decide*.”

This adage is important for any discussion on this subject. As bankers, there are at least ten decisions relating to ‘money’ that we make every day, and these could ultimately add to the bottom-line or impact it adversely.

And even though we are in the public sector, we are not ‘the Government’. The bureaucracy does not make commercial decisions, at least not to the extent of bankers, and therefore, there is a distinction between decision-making in government and in government banks, though both are part of the ‘sarkar’ in the eyes of the common man.

The issue to be addressed is ‘post-facto judgment’ by agencies that do not have any idea whatsoever about credit decisions, trying to ‘fix’ accountability for ‘losses’ that might arise out of loans.

In a career spanning, say 20 to 30 years, if an individual has been able to get it right 6 times out of 10, it could be said that he/she is ‘excellent’. Anything lower should, at worst, be seen as ‘less competent’ in the absence of strong evidence of malafide. Nobody holds any brief for venality and corruption in credit decisions.

But, unfortunately, prosecuting and related agencies such as the CVC have their imperfections and these impinge negatively on credit decision-making. In the present circumstances, one needs to have the bravery of a soldier, not merely the astuteness of a banker, to take loan decisions because the CVC or the CBI could step in and question you, may be 10 or 15 years after the event.

The Mallya factor:
Following Kingfisher, every credit decision that has gone wrong is being viewed through the Vijay Mallya prism. Even that loan decision, per se, cannot be condemned without understanding the circumstances surrounding it.

The question of whether we can lend against a brand are commercial. Private equity funds invested $1 billion in loss-making Flipkart in 2014. Could any bank have been faulted for lending $200 million to Flipkart, assuming the company at that time had a debt equity of 1:4 or 5? If the loan goes bad later, would you still blame the banks?

Even as I was writing this, a retired general manager of my bank from Kochi called to say he has been asked to depose next month in Delhi in a case relating to a credit decision he took in 1989!

Why would anybody take any decision if there is the prospect of being called to a court of law, 26 years later, when you would have totally forgotten why you did what you did?

One counter to this could be that you need not remember, if you were to capture on paper, the rationale for your decisions. But then, as someone jested, the worst fool can always ask questions even the wisest cannot answer. An ‘external agency’ asking you to depose on and defend a decision 25 years after the event will definitely affect the culture of decision-making.

In the current context, when there are a number of vacancies at the top, the tendency would be to play it safe because if you do nothing, you cannot go wrong. From a very selfish, career point of view, the risk of taking a decision far outweighs the risk of a decision that could go wrong.

There are many examples for this. But this one is irresistible. Jiji Thompson, IAS, an incontrovertibly upright and highly competent officer of the Kerala cadre, has been charge-sheeted in a vigilance case relating to a Cabinet decision of 1991, in which he was a signatory. He retired on February 29, 2016. The alleged beneficiary of the “conspiracy to cheat the public exchequer” is dead and gone. The chief minister who presided over the Cabinet meeting is no more. But the trial at the lowest vigilance court is yet to start!

An overhaul is called for
It is high time those at the helm, both in government and the regulatory bodies, thought of a thorough overhaul of our vigilance and CBI supervision of credit decisions. I have had to give statements before inspectors of police who cannot differentiate between a fund-based and nonfund-based credit facility and the concept of margin, not to speak of other nuances of loan proposals I signed 15 years ago. Of course, those who are accustomed to decisions will continue doing so, no matter what happens, because it is to your conscience that you ultimately have to answer.

In the parables of Ramakrishna Paramahamsa, there is an incident of his trying to repeatedly trying to save a drowning scorpion, even as it tries to sting him.

He said, “It is the nature of the scorpion to sting when it is scared. It is my nature to help it. Should I give up my nature just because it sticks to its nature?” Those who are second-natured to decide will continue to decide. But should we leave the culture and the system of credit-decision making to the nature of men?

It is time that a high-powered committee is constituted to examine this paramount issue to suggest solutions before paranoia turns to decision-paralysis.
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Personal experience of a senior officer is as follows.collected from facebook.


*STAFF SIDE ACTIONS - A DEMOTIVATING SCENARIO IN PNB*

I am Rajeev Puri, presently working as Zonal Manager, Mumbai for almost last Seven Months. I am feeling in my Zone that most of the officers are scared to take any decision & there is lack of enthusiasm in their working. I have worked here in Mumbai earlier also as AGM Bandra three years ago, the work culture has entirely changed in last few months after this Nirav Modi fraud. People are scared of Charge sheets, which are being issued on very small issues without going into the depth of the matter. May be this type of hype is more in Mumbai Zone but I feel things are not good in other Zones also.

I personally feel that Nirav Modi fraud has given  quantified loss to our beloved Bank, however this atmosphere is giving unquatifiable loss which will hurt the performance of Bank in long run.

I am giving the following views in my personal capacity as an officer of PNB and not as Zonal Manager  Mumbai. These views are based on the feedback received from various quarters during last few months of experience in Mumbai and my personal experience in the banking industry for more than three decades, during which I remained an Association Leader also for a long period. I have felt emotions of officers & effect of staff side decisions on their professional & personal life very closely. So now I have experience of both sides of the table i.e. as Zonal Secretary/AGS of Association & as Circle Head & Zonal Head.

I want just to have an open discussion by all my senior colleagues on the matter of disciplinary actions & demotivating affect on staff members & how to come out of this situation to save our Bank from such negative thoughts & grow our Bank's business at a much faster pace & an atmosphere of trust & Confidence among PNBians, I may be wrong on many counts but i just want to start discussion to reach at a conclusion for better PNB & better working conditions. So all are requested to give free & frank views on this issue so that we could snub this negatively & we all are in a position to do it,

*WHO IS RESPONSIBLE FOR THE STAFF SIDE ACTION ?????*

i) Top Management
ii) Vigilance Department
iii) Inspection and Audit Division
iv) Zonal Manager
v) Circle Head
vi) Branch Head

My personal opinion is that the

*SUCCESSOR*

at the field level plays a major role in determining the staff side accountability of his / her predecessor, more than anyone else.

Most of the *SUCCESSORS* feel that their predecessor was not competent and had lack of knowledge. In some cases, the successor feels that his / her predecessor was the most corrupt person. Moreover the worst part is *SUCCESSOR* feels that he/she is the most intelligent person across the organisation.

When the account slips to irregular category, the *SUCCESSOR* starts finding all the negative points in that particular account rather than to find out the cogent reasons and remedies thereof to regularize the account by taking some positive decisions & push the account to NPA to save his/her skin & spends a lot of time on research work about the negative points in the account & sends the requisite Annexure I & II to C.O. with full research work to show his/her intelligence & to cover up his/her inefficiencies in post Sanction follow up & recommends for investigation.

Similarly some times, the CO/ZO simply recommend the case for investigation in the account without putting forth the facts of the case. They simply believe the report of the present Incumbent In charge without analysing the efforts made by the present Incumbent In charge for upgradation or recovery in the account.

Based on the recommendations of the CO/ZO, the HO deputes investigating officer. The Investigating officer also looks into the account 80-90% to fix up staff accountability angle rather than to analyse the reasons of slipping the account into the NPA category and sometimes even without meeting the borrower to know the facts of the case  The investigating officer just submits the findings in arithmetic terms and defects in documentation & procedural lapses etc. without finding out reasons for Account slipping to NPA & gives the names of all officers in Branch/CO/ZO whosoever have touched the file.

Nothing is left now to understand for the disciplinary committee / vigilance department. They have now to only decide which lapse is actionable / non actionable. Then starts the process of tabular pro-forma / charge sheet/ inquiry and long process of demoralization of 10-20 persons along with their family members and it is a fact that the frustrated employee will tell to all Tom & Harry about his / her innocence and harassment by the Bank and the demoralization extends to at least 200 persons who are near & dear ones of that particular employee. Further many officers will take the benefit of this case by finding excuse not to sanction loans. Young officers start commenting on social media and spread the word to all their friends and colleagues on What's App and other social media platforms.

*CONCLUSION:*
In my long career of more than 30 years in banking, I have experienced as under:

1. Very few people are corrupt in the banking system.
2. There is a thin difference between bonafide and malafide intention.
3. The circumstances change at the time of sanctioning the loan and at the time of account slipping to NPA.
4. It is normally the fault of the *SUCCESSOR* who don’t want to take any type of risk in case of any irregular account.
5. The biggest punishment to an employee is the long process of disciplinary action from the date of tabular pro forma, till the decision is taken.

It normally takes 6 months to 2 years (in some cases) to complete the process. The financial implication of punishment is not much pinching to the employee but the mental agony and the fear of hanging sword is much more than the final punishment. It also affects the working of that particular employee.

We should be very sure to brand a person as corrupt / deciding his malafides and we have to ensure that even if a corrupt person has done something wrong, other innocent persons do not suffer due to greed of one person.

Now let us analyze who is responsible for all these:

i) The *SUCCESSOR* 50%

ii) Persons deciding to conduct an investigation- 20%

iii) Investigating officer- 10%

iv) Persons taking long time in decision making- 10%

v) Disciplinary Authority- 10%

As per my opinion some times reasons for the accounts turning into NPA are as under:

i) Laxity in pre-sanction appraisal & proper due diligence mostly in takeover cases.

ii) Gross negligence on the part of processing officer & Sanctioning authority.

iii) Loan done under self-imposed pressure for references received from Politicians/Administration/Seniors.

The pressure may be on account of following also,

➡ Due to delaying tactics & indecesiveness at BH level  & reaching at a point where Borrower is so irretated that he/she will go for 💯% Complaint against Branch if BH now rejects the case or don't forward the case to higher authorities. *(The Best quality of a Good Manager must be to have  courage to say big NO within 1-3 days without any fear or pressure on the basis of demerits of the case.)*

➡ Moreover any reference should be treated as only a good business opportunity with positive frame of mind and not as a compulsion. 100% due diligence must be done in a positive way.

iv) Decision taken under influence of the  borrower by looking at his standard of living or by getting some costly gifts.

v) Reckless financing due to over ambitious approach of the Incumbent to get faster promotions.

Some loans go bad due to the above mentioned facts & we as a Zonal Head or Circle Should guide our staff to take decisions quickly & with Confidence. Further we should take quick action in removing a BH in case we receive any negative report through a formal or informal channel.

So let us discuss among ourselves to change this negative atmosphere in our beloved Bank & decide to take disciplinary actions with a lot of depth in the matter & not as a routine.