The Hindu Business Line : `Banks need to develop skills to spot investment opportunities'

FORMER Revenue Secretary, Mr M.R. Sivaraman, has lamented that he had to personally intervene on behalf of a company to get loan from a bank. The company was strong and the purpose for the borrowing was sound, yet the bank demanded personal guarantees of the promoters of the company.

"It should not require the personal intervention of a former Revenue Secretary for a bank to give a petty loan," Mr Sivaraman said, calling upon banks to adopt a positive approach in spotting lending opportunities.

He was speaking at a seminar on `Challenges and opportunities for banks in the next decade,' organised here by the Loyola Institute of Business Administration.

He said that while banks shy away from lending small amounts to companies with a solid track record, they readily give loans to large corporates that may not have a good performance history.

But in the emerging competitive scenario, banks will have to acquire the expertise to spot good investment opportunities. This would call for rigorous training, he said. "Several bank managers are yet to be trained in how to read a balance sheet and judge a potential investment opportunity," he observed.

But the training should go beyond spotting good business opportunities. The managers have to be trained to track each and every portfolio in their books, to be aware of what the borrower is doing with the money.

Mr Sivaraman said that bankers would need to be trained in anti-money laundering - they should be able to spot suspicious transactions and report them.

From the Government's side, he said, it might be necessary to set up a `financial intelligence unit,' to which suspicious transactions could be referred.

Mr Sivaraman also said the country needs to decide on whether or not to let failed banks close down. Till now, no bank has been allowed to close down in India, because a bank closing down could have a negative ripple effect on the economy. However, propping up a poorly functioning bank has its own costs.

He said that different approaches would be needed for different kinds of bank failures. If a bank fails due to management's negligence or fraud, then it must go. On the other hand, if a bank's business gets badly hurt due to government's policies (such as directed lending), then there should be a mechanism to hold it aloft, he said.