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Sarbajeet K. Sen

`Segregation plan will turn away clients to bigger banks'

New Delhi , April 16

The Reserve Bank of India might find it tough to give its assent for higher loan sanctioning powers to chief executives and executive directors of large public sector banks with smaller banks raising their voice against what they perceive as `apartheid' that could be detrimental to their interest.

The RBI is examining a proposal to grant differential sanctioning powers to PSU banks chiefs, with those heading banks with a loan portfolio of over Rs 25,000 crore being given higher powers compared to CEOs of banks having assets less than the cut-off limit.

Adverse impact

Smaller banks feel that such segregation would adversely impact their business with customers likely to move away to bigger banks for one-stop approval from the CEO instead of having to wait for the Board of Directors' approval if they to go to a bank with an asset base less than the cut-off.

"This would be discriminatory. Smaller banks would slowly lose good accounts. Not only would new loan proposals move to larger banks but also existing clients of smaller banks with large loan proposals may be tempted to shift their loyalties," former Chairman and Managing Director, Vijaya Bank, Mr M.S. Kapur, told Business Line.

Differential powers

Mr Kapur said that he had raised the objection at the March 23 meeting of CEOs of PSU banks with the Finance Minister, Mr P. Chidambaram, during which the proposal had come up for discussion.

The chief executive of another mid-sized PSU bank agreed that differential powers to CEOs could be harmful to smaller banks. "Clients want quick approval of proposals. If they get that from a larger bank they would obviously like to move," the CMD said on condition of anonymity.

Under the proposal, CEOs of banks with loan portfolio of up to Rs 25,000 crore will have powers to clear proposals up to Rs 60 crore for a single borrower and Rs 120 crore for group exposure. However, CMDs of banks with larger credit portfolio (above Rs 25,000 crore) will have powers to sanction up to Rs 100 crore for single borrowers and Rs 200 crore for group exposure. The proposed limit for EDs has been retained at 75 per cent of the CMD's powers for both categories.

Incidentally, the 1997 norms on loan sanctioning powers (which remain in force) had also set proposes differential powers for CEOs with the cut-off on aggregate loan portfolio set at Rs 5000-crore. While CEOs of those banks with credit portfolio below the cut-off level could clear loan proposals of up to Rs 15 crore, for chiefs of the bigger banks it was Rs 30 crore.

Loan portfolio

However, over the years, the segregation had lost its meaning since the loan portfolio of all PSU banks had grown beyond the cut-off level.

Some of the banks among the 27 PSU banks that had a loan portfolio of less than Rs 25,000 crore as on March 31, 2005, were Allahabad Bank (Rs 21,151 crore), Andhra Bank (Rs 17,517 crore), Bank of Maharasthra (Rs 13,062 crore), Corporation Bank (Rs 18,546 crore), Dena Bank (Rs 11,380 crore), Indian Bank (Rs 18,380 crore) United Bank of India (Rs 11,839 crore) and Vijaya Bank (Rs 14,335 crore).

Related Stories:
PSB chiefs may get more loan sanctioning powers

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