Banking, Uncategorized

Bank Lending & Corruption

There was reportedly a recent meeting of public sector bank heads in Delhi with the Finance Minister. The meeting was ostensibly to discuss something related to bad debts, but the emphasis of the discussion, as per press reports, was on the “fear” of bank heads pursuant to the action initiated by CBI against a few officials of one bank. It is extremely surprising that some of the generally well considered, efficient, competent chairpersons of banks were vocal about such irrational fears. It is also interesting that a similar fear was not expressed as vocally when the Chairman of another bank was arrested on corruption charges some months back. There is no evidence to suggest that there is any witch-hunt on against bank boards or officials.

India needs growth and banks play a very vital role in this. Any commercial decision carries with it a reasonable risk of it going wrong. Similarly some decisions might well turn out to be turning points for both the banks and their borrowers. What matters is whether decisions are taken with a clear conscience and with integrity, taking all known risks at that point of time into consideration. The Bank Board Bureau (BBB) under the ex-CAG Mr. Vinod Rai is not there to oversee every bank lending decision and to have bank bosses take a stand that every decision of theirs with respect to lending should be approved, prior to disbursement, by the BBB is nothing short of weird.

There is supposedly a freeze on lending by banks because bank chairpersons and officials are wary of taking decisions. These people have been put in their positions at high salaries to do a job which means they put the funds at their disposal to the best possible use, which includes lending to good borrowers. If they are going to offer lame excuses and avoid their responsibilities, what justification is there for them to occupy those high positions? They would better serve the organisation by quitting and allowing someone else who is willing to do the job they are supp0osed to do to do it.

The hype about increasing bad debts does not help anybody. Certainly there is a problem that needs to be tackled. In this investigative agencies also do have a role. Wrongdoing, if any, whether of corruption or of undue influence, needs to be identified and taken to its logical conclusion, as per the laws in force. This in no way implies, or should be taken to mean, that there will be unreasonable action again bank officials. Only where justified, the agencies and courts will and should do what they are expected to do.

Any Chartered Accountant or Project Consultant worth his or her name can come up with a glossy and attractive project report for almost any project with rosy projections and supposedly attractive returns. It is upto savvy investors and knowledgeable and experienced bankers to separate the wheat from the chaff, and take up the proposals that look good to them. In this there is ofcourse no guarantee that every decision will turn out to be correct, but as long as the bankers can show that they took all reasonable precautions, neither investigative agencies nor courts should commonly find fault.

Bank debts turn bad or doubtful due to various reasons internal or external to the particular enterprise. That there has been political pressure in the past to lend to a particular borrower is hardly a secret particularly given that bank board appointments have largely been influenced by political considerations. Similarly, there has been corruption within the bank too. However, not all decisions have been unduly influenced and many top bank officials have maintained their integrity despite such pressures. This is indeed creditable and needs to be appreciated.

Many infrastructure projects were stalled due to land acquisition and other external issues, and the companies which borrowed for such projects have been unable to repay. The government has made quite a lot of progress in sorting out some of these issues and this process is ongoing. This will in turn start to show up as marked improvements in the bad debts position. However, it is a fairly long process and will take time. Banks will therefore continue to be saddled with such loans remaining doubtful of recovery in the immediate future. This may well constrain those banks from lending too much more. However, to take a stand that banks will not lend till all these issues are sorted out is clearly self-defeating and it is time the government steps in to rectify this position, improve sentiment and ensure that viable projects, which are vital for the country continue to get the funds they need at the right time.


Law Enforcement and CBI

It has become fashionable to demand “CBI Enquiry” for any perceived or actual “scam” in any state. There are some Johnny-come-lately outfits like AAP which throw around allegations like there is no tomorrow, without providing any evidence, or even following it up with an FIR or court action. They too go the whole hog and demand CBI to investigate.

Every country certainly needs a central law enforcement agency. In the US there is the Federal Bureau of Investigation, the FBI. In the UK there is Scotland Yard. In India we have the Central Bureau of Investigation, the CBI. The CBI has done good work on some cases, and brought many criminals to book. They also have connections to international organisations like Interpol to assist when crimes cross national boundaries. However, if each case, for political reasons mostly, gets referred to CBI, then the organisations starts to get overburdened and the pace and quality of investigations suffers.

Each state has its own police force, some more efficient and less corrupt than others. The obvious starting point for any complaint that may arise would be to approach the local police station to file a complaint. This police station determines if they have the jurisdiction to investigate. In most cases, where special crimes are involved, the state authorities or police themselves may refer the complaint to the Economic Offences Wing, Crime Branch or the Cyber Cell. Police-setups in most states have such cells staffed by trained personnel equipped with the skills needed. Apart from this there are the special police stations and cells to take up crimes against women and children.

So why this sudden urge to handover almost every case to the CBI? One can understand if there is a crime which needs investigation in more than one state, where multiple jurisdictions are involved. Here it would make sense to hand it over to a central investigating agency like the CBI. Somewhat similar to the FBI in the US being called in.

Here it seems more of political escapism. Once the case is handed over to the CBI the state political and law enforcement establishment can throw up their hands and say it is now upto the CBI to investigate. “WE will cooperate fully with the CBI and want the truth to come out” is a common stand.  So does this work. In most cases, it just delays the process. With so many cases on hand, and inadequate staff, prioritizing cases becomes an issue for the CBI. On top of that, some of these cases also go to court in the form of Public Interest Litigation – PILs – filed by various individuals or organisations at the state or centre. This brings the CBI investigation into court glare, and often the court sets up special teams or court appointed committees to oversee the investigation. This adds one more layer of reporting and often interference.

As a result of all of this, law enforcement has become a convenient pass the buck situation. The local police heads loose authority, and in the process, respect of subordinates, demoralizing the force and reducing if not eliminating accountability at the local level. The local beat constable who is the mainstay of any force looses interest in investigating any major case, being quite satisfied with handling petty crime at his or her level. It is time this alarming situation is reversed and all concerned at the states and centre need to put their heads together for this.