Who would have thought that bankers had dangerous jobs?

This is a very drooling extract from PSmith in the City by PG Wodehouse, which gave its readers an idea of ​​what a bank and a banker are. The allure is definitely gone and replaced with bewilderment. Behind the doors of the banks, the letters of the English alphabet denote individual words. While ‘A’ can be property and ‘B’, the letter ‘C’ causes stumbling block, as the acronyms of CBI, CIC, CVC and CID come up. Yes, the new world of banking in India is buried and tough times continue for the bankers.

The recent case involving the former chairman of a Public Sector Bank (PSB) has exposed the trauma of being a banker. The bank lends money to a hotel in 2007. The loan turns into a non-performing asset (NPA) in 2010. In 2013, the president of the bank normally retires. In 2014, the NPA was sold to an asset reconstruction company (ARC). It happens that upon retirement, the chairman becomes a director on the board of this ARC. And following a case filed by the defaulter in a local court in 2021, a non-bailable warrant has been issued against the former chairman (ie after eight years of retiring). The banker is arrested, and granted bail, but suffers the quadruple blow of loss of reputation, liberty, health and money, as such cases may go on. This is an alarm bell for bankers. Not safe even after retirement.

This particular case highlights the risks borne by a banker who is on the lending side or is leading the organisation. We have seen many bankers in the dock after the high-profile default cases of Nirav Modi and Vijay Mallya. Here, the alleged wrongdoing was in credit disbursement. Bankers were given more attention than defaulters. But no one knows what happened to the bankers who suffered the quadruple blow. The present case is even more bizarre in this theater of absurdity as the defaulter has been heard in a case relating to sale of assets by one bank to another company, but the person chosen is a retired banker who was not even when Sale took place.

It has been observed that there is always sympathy with the defaulters; Even the Reserve Bank of India had to withdraw its June 2018 circular which mandated NPAs to be taken up for resolution under the Insolvency and Bankruptcy Code (IBC). Unfortunately, many businessmen think that they do not have the right to borrow and repay because they are serving the country. It doesn’t matter when they do well, their profits go to the shareholders, not the government. The typical argument to be made is that the economy has performed poorly and therefore their business has been affected.

It is clear that such cases will be a reality in the future and there is a need to save the bankers.

Banks are run on commercial lines. Today, the same is true of PSBs. The idea of ​​privatization hinges on making these banks profitable and thus making good purchases for potential buyers. Also, public sector banks have to carry out various social-agenda programs of governments to ensure alignment with the larger goals. They also need to grow their books and make profits. But when the chips run low and asset quality deteriorates, or troubles arise, such as in the case of NPAs sold to ARCs found unaccountable to the defaulter, bankers are left to fend for themselves. Is.

what a drag? With the establishment of a new ‘Bad Bank’ to deal with the bad loans of the banks, the government has a bigger role to play. Against the backdrop of the ex-banker’s woes, would a bank voluntarily sell its NPAs if the value of the deal could be disputed in court and the bankers are at personal risk? The government needs to create a new rule book to incentivize the bankers, otherwise they may find the best solution to the delay, especially since the heads of the banks have fixed tenure and they would not want to take decisions that would take them years later. can disturb.

First, just as the government runs insurance programs for health, life and farmers, we need a new ‘Pradhan Mantri Banker Bima’ scheme, under which banks have to pay premium to insure their workers against job hazards. will have to pay. The category of personnel covered can be decided by them. If a case is made out, the insurer will bear the cost.

Second, any case against a banker should be taken up by a special group of lawyers in the name of Indian Banks’ Association, so that a retired banker facing charges does not have to run around in search of a lawyer. The bank will make legal arrangements if the person is in service, but post-retirement cases also require support.

Third, all such matters should be routed through the Ministry of Finance, where a special division should be created to ensure order. At present, the prevailing view is that once the matter is sub-judice, the government cannot intervene. Therefore, there should be a pre-emptive mechanism to gain prior knowledge about such a problem before it comes to the door.

A safety net is needed if banking reforms are to be successful. There is a lot of enthusiasm about the establishment of a new bad bank, which could be a non-starter if the current issue is not resolved quickly. Also, the progress of India’s Insolvency and Bankruptcy Code could suffer a further setback if the fears of bankers are not pacified. The current NPA case encourages defaulters, and, as the aggrieved party, banks are likely to be more defensive.

Madan Sabnavis is an independent economist and author of ‘Hits and Mrs: The Indian Banking Story’.