All loan defaults cannot be viewed as corporate frauds

IT IS FOR OFFICERS TOO - 2
Hi friends,

Yesterday, it was Honourable Governor of RBI and today it is the turn of Sri. Vinod Rai, chairman, Banks Board Bureau, came out openly While he was speaking at the National Institute of Bank Management’s in Pune at the 12th convocation of the PG Diploma in Management (Banking and Financial Services)on Wednesday, to point out that not all loan defaults were wilful and not all lending activity, even if it is to salvage such stressed accounts, could be branded as corrupt practice or criminal misconduct.

He added “It needs to be recognised that all loan defaults cannot be viewed as corporate frauds and all such decisions of banks to provide the loans as acts of malfeasance which would be a grave travesty of justice.

The former CAG who unearthed many scams urged against creating a large scare in the sector and suggested lending activity be accelerated to support an economy that wanted to rapidly accelerate growth.

While acknowledging the banking sector had seen considerable stress in recent year, he warned against allowing the cacophony of uninformed voices to debilitate the decision-making capability of bank executives. “ Projects do have time and cost over-runs. Quite often the problems are creations of the global economy,” he pointed out.

While there was a need to address the stressed assets issue with urgency and diligence there was no need to debate ad infinitum the escapades of one or two industrialists, Rai suggested.

Nevertheless, these need not be magnified to create an alarmist situation leading to a backlash wherein banks become risk-averse whether in lending afresh or settling old cases,” Rai said.

Loan defaults do occur in the banking industry and these may occur for a variety of reasons which are beyond the control of the creditor, he said.

These defaults merely amount to a breach of contract and hence are not necessarily criminal in nature and It would attract criminal prosecution only if fraudulent or dishonest intention is established, Rai said.

Defaults occurring on account of a downturn in the economy or adverse external factors cannot be construed as cheating or borrowing with a mala fide intent, Rai said.

Unless intent is established, decisions by banks to lend money to revive or turn around a stressed asset should not, per se, provide a ground for suspicion, the BBB chairman said.

He pointed out that banks had faced such problems in the past whether it was the Southeast Asian crisis in the 90s or the financial meltdown of 2007. Indian banks underwent very challenging times, but emerged stronger, he said.

The attempt will always be to defend transparent and well-considered decisions taken in good faith which went awry for conditions beyond the control of the lender or the borrower, Rai said.

Dear friends,

All theses statements appeared above are the continuos voice of the Officers’ Associations and the basis for our demand of introducing an ACCOUNTABILITY POLICY in the Banking sector.

These Industry Chiefs, the Governor, RBI and the Chairman BBB strongly now advocated the pleas of officer Associations to uphold the bonafide decisions of the Bankers in the process of doing business and don't make them as victims and scapegoats of the loan failure.

We may even demand the review of the punishments imposed on the Bank officers on such loan failures.

Let us bring professionalism, remove the fear psychosis in the minds of Bankers to sustain the growth of the Indian Public sector Banks in particular who played a stellar role in energising economic growth and provided much needed resources in 2007 when the world was struck by the meltdown, as the Chairman, BBB certified.

SAVE THE BANKERS
SAVE THE PUBLIC SECTOR BANKS

MANIMARAN G V