Don’t push bankers into indecision

Now that three of the most important stakeholders in the Indian banking landscape have spoken in favour of essentially treating ‘lending’ as the dharma and karma of bankers, it is time perhaps to revisit the entire gamut of issues connected with decision-making in credit, especially in public sector banks.

Addressing a convocation at the NIBM last week, Vinod Rai, currently chairman of the Banks Board Bureau and internationally respected for his role as the CAG, said “the cacophony of uninformed voices should not impact the decision-making process of bank executives”. About the same time, while SBI chairman and banking thought-leader, Arundhati Bhattacharya, said that lenders need to be “empowered” and not rapped on their knuckles, the RBI governor, Raghuram Rajan, put across a broader regulatory perspective that “it would be wrong to take a negative view on the lenders’ judgment on a non-performing loan after the passage of several years and linking it to the changed situation prevalent at that time”.

All three seemed to be reading from the same page of an ideal treatise on commercial banking practice. But when you come to the ground level, decision-making, especially in high-value credit, is still hampered by fear of intervention by the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI), sometimes many years after the event.

Bankers take commercial decisions and could go wrong in both their judgment and assessment. It was Napoleon Bonaparte who said that, “Nothing is more difficult, and therefore more precious, than to be able to decide.”

This adage is important for any discussion on this subject. As bankers, there are at least ten decisions relating to ‘money’ that we make every day, and these could ultimately add to the bottom-line or impact it adversely.

And even though we are in the public sector, we are not ‘the Government’. The bureaucracy does not make commercial decisions, at least not to the extent of bankers, and therefore, there is a distinction between decision-making in government and in government banks, though both are part of the ‘ sarkar ’ in the eyes of the common man.

The issue to be addressed is ‘post-facto judgment’ by agencies that do not have any idea whatsoever about credit decisions, trying to ‘fix’ accountability for ‘losses’ that might arise out of loans.

In a career spanning, say 20 to 30 years, if an individual has been able to get it right 6 times out of 10, it could be said that he/she is ‘excellent’. Anything lower should, at worst, be seen as ‘less competent’ in the absence of strong evidence of malafide . Nobody holds any brief for venality and corruption in credit decisions.

But, unfortunately, prosecuting and related agencies such as the CVC have their imperfections and these impinge negatively on credit decision-making. In the present circumstances, one needs to have the bravery of a soldier, not merely the astuteness of a banker, to take loan decisions because the CVC or the CBI could step in and question you, may be 10 or 15 years after the event.

Following Kingfisher, every credit decision that has gone wrong is being viewed through the Vijay Mallya prism. Even that loan decision, per se, cannot be condemned without understanding the circumstances surrounding it.

The question of whether we can lend against a brand are commercial. Private equity funds invested $1 billion in loss-making Flipkart in 2014. Could any bank have been faulted for lending $200 million to Flipkart, assuming the company at that time had a debt equity of 1:4 or 5? If the loan goes bad later, would you still blame the banks?

Even as I was writing this, a retired general manager of my bank from Kochi called to say he has been asked to depose next month in Delhi in a case relating to a credit decision he took in 1989!

Why would anybody take any decision if there is the prospect of being called to a court of law, 26 years later, when you would have totally forgotten why you did what you did?

One counter to this could be that you need not remember, if you were to capture on paper, the rationale for your decisions. But then, as someone jested, the worst fool can always ask questions even the wisest cannot answer. An ‘external agency’ asking you to depose on and defend a decision 25 years after the event will definitely affect the culture of decision-making.

In the current context, when there are a number of vacancies at the top, the tendency would be to play it safe because if you do nothing, you cannot go wrong. From a very selfish, career point of view, the risk of taking a decision far outweighs the risk of a decision that could go wrong.

There are many examples for this. But this one is irresistible. Jiji Thompson, IAS, an incontrovertibly upright and highly competent officer of the Kerala cadre, has been charge-sheeted in a vigilance case relating to a Cabinet decision of 1991, in which he was a signatory. He retired on February 29, 2016. The alleged beneficiary of the “conspiracy to cheat the public exchequer” is dead and gone. The chief minister who presided over the Cabinet meeting is no more. But the trial at the lowest vigilance court is yet to start!

It is high time those at the helm, both in government and the regulatory bodies, thought of a thorough overhaul of our vigilance and CBI supervision of credit decisions. I have had to give statements before inspectors of police who cannot differentiate between a fund-based and nonfund-based credit facility and the concept of margin, not to speak of other nuances of loan proposals I signed 15 years ago. Of course, those who are accustomed to decisions will continue doing so, no matter what happens, because it is to your conscience that you ultimately have to answer.

In the parables of Ramakrishna Paramahamsa, there is an incident of his trying to repeatedly trying to save a drowning scorpion, even as it tries to sting him.

He said, “It is the nature of the scorpion to sting when it is scared. It is my nature to help it. Should I give up my nature just because it sticks to its nature?” Those who are second-natured to decide will continue to decide. But should we leave the culture and the system of credit-decision making to the nature of men?

It is time that a high-powered committee is constituted to examine this paramount issue to suggest solutions before paranoia turns to decision-paralysis.

The writer is chief general manager with SBT. The views are personal

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