The Centre is examining a suggestion made by lenders to relax existing guidelines that prevent state-run banks from taking over corporate accounts from another lender where its current top management was previously posted. Over a decade ago, the government, through an advisory, asked public sector banks, or PSBs, to stop this practice and seek board approval with specific reasons justifying the takeover of the account.
“Lenders are of the opinion that the circumstances under which those directions were issued in 2012 no longer exist, and also that sanction of loans is done at various levels and the top management is not solely responsible for such decisions,” said a person aware of the developments, adding that the matter is being examined.
A bank executive said that the lenders made this representation to the government after widely held internal deliberations among state-run banks. “There are already various checks and balances in place. These guidelines create undue restrictions in normal business dealings,” he argued.
Former financial services secretary DK Mittal under whose tenure this circular was issued said that this was done after due consultation with all stakeholders.
“I don’t see any reason to withdraw this circular. There were observations made by the vigilance commission and all those issues are still relevant,” he said.
In 2012, the finance ministry, in its circular issued to chiefs of all PSBs, reasoned that the decision was taken after observations made by the Central Vigilance Commission that sometimes existing accounts with one bank already showing signs of sickness are taken over by another bank. Such accounts predictably turn into non-performing assets, or NPAs, in the bank that took over the account within a short time. “The CVC is of the opinion that sometimes even influence from senior officials, including directors on the board of banks, plays a vital role in pressuring the field-level staff as well as those working in credit departments of RO, ZO, and HO to recommend sanction of such loans,” the circular stated. Accordingly, the government advised that no cases should be taken over by a bank from any bank where any of its EDs or CMDs have worked earlier. In the event that any such cases need to be taken over, the proposal will need to be put up to the board with specific reasons justifying the need for taking over the accounts.
