The Hindu Business Line : `CVC decision will help banks to be more vigilant'

FOLLOWING several representations made by the Indian Banks' Association (IBA), and the Banking Division of the Finance Ministry, the Central Vigilance Commission (CVC) has decided to limit its jurisdiction to officers of Scale V and above in public sector banks, i.e., to personnel above the category of Assistant General Manager.

While the move has been welcomed by the banking sector at large and has given new impetus to officials to take commercial decisions freely without fearing that CVC investigation for decisions have gone bad, it also raises questions about the level of preparedness among banks to deal with internal fraud.

In an interview with Business Line, Mr V. Leeladhar, Chairman, IBA, discusses the procedure and processes that will help banks be more `vigilant' in the future. The following are the excerpts:

What was the need that prompted CVC to limit its jurisdiction to officers of Scale V and above in public sector banks?

The coverage of CVC used to be up to the Scale III officers, who would generally be in charge of medium size branches. Most of them were responsible for sanctioning all advances, be it priority sector, housing or other lending's at that level.

Although the number of cases handled by CVC was small compared to the number of banking employees in the system, even the punishments doled out to this microscopic segment send signals to the entire sector. Therefore a kind of fear psychosis crept into the minds of the officers who were responsible for sanctioning advances resulting in non-performance, as non-performance may not attract a penalty but an account turned NPA just might. Therefore, there was a lot of indecision, which was responsible for the slow growth of credit, or even the lack of credit offtake in the banking sector.

Therefore, the CVC's coverage has been restricted to scale V and above, i.e., officers holding the designation of Assistant General Manager and above. Will the CVC decision lead to dilution of vigilance in banks?

Just because CVC has restricted its jurisdiction, it does not mean that vigilance will become lax. Every bank has a Chief Vigilance Officer who is an outside officer on deputation from another bank. No doubt, the vigilance system in banks has to be stabilised and has to be focused on `preventive vigilance'. These days preventive vigilance is the focus for banks, and a lot of material on the types of frauds, various methods in which the system may be abused etc., is being circulated among bank employees to create awareness. The other function of vigilance has to be the `post-mortem' of cases, which have been brought to light.

How does a bank identify vigilance cases and how does the machinery work to pin accountability and impose penalties?

Cases usually come to bank through two or three avenues such as customer complaints, inspection of branches, or when accounts become NPA and there is an investigation to fix up staff accountability. While the CVO decides staff accountability, it has been suggested that each bank must have a committee of three General Managers, who will examine every complaint, staff audit etc. The recommendation made by the committee will go to the CVO who will decide whether the case is a vigilance case.

The CVO will forward his decision to the Disciplinary Authority within the bank, who in turn will decide whether the offence deserves a major or a minor penalty. Based on that, the first stage advice will be sought from the CVC, once that comes the enquiry starts. The Authority pronounces the penalty and refers it back to the CVC for approval.

How has vigilance changed today?

In the past vigilance cases were often opaque. For example, if a transaction causes heavy losses to a bank, it would be treated as a vigilance case, even if it was only a bad commercial decision and not really fraud. Many things would come into the net of vigilance even though they were not `Malafides'.

Therefore in response to the Indian Banks Association's requests, the CVC has now made it clear that `vigilance angle is obvious' only in malafide cases, like in cases where the official has demanded or accepted gratification other than legal remuneration for an official act etc., or acceptance of bribes, possession of assets disproportionate to known sources of income etc.

Henceforth, officials can feel free to take commercial decisions. If they are not indulging in malafide activities, they need not fear vigilance. Nobody has to avoid performance-citing fear of CVC anymore.