Following the Syndicate Bank bribery scandal, the committee approach to lending by public sector banks has come under a cloud and it is important that the Finance Ministry and the Reserve Bank of India take a hard look at it, say bankers.

A committee-based approach involves a group of senior officials coming together to sanction credit.

Fearing that their career prospects will be harmed, general managers on such committees are hesitant to take a firm stand against unbankable loan proposals, even if the bank chiefs back them.

The general managers worry that there will be a blot on their confidential records if they dissent on a loan proposal where the bank’s top echelon is interested.

The committee approach came into vogue a couple of years ago, after public sector bank top brass delayed credit decisions, given the ever-present shadow of the Central Vigilance Commission and the Central Bureau of Investigation.

To hasten decision-making

While the “collective responsibility” that came with the committee approach helped quicken the decision-making process, it also led to a spike in bad loans, said a senior public sector bank official.

“The Chairman and Managing Director exercises undue influence on members of the loan committee as he is the authority who can make or mar their careers by making favourable or adverse remarks in their confidential records,” he said.

When a loan goes bad, it is usually the lower-rung officers who are held accountable while the big fish (members of the loan committee) escape the net. Also, the members of loan committees are powerless as they cannot exercise veto power. Dissent, if any, has to be discussed and addressed to arrive at a consensus and decisions ought to be taken unanimously, the official added.

K Unnikrishnan, Deputy Chief Executive, Indian Banks’ Association, observed that it is difficult for a junior bank officer to stand up to a superior in the hierarchical system in public sector banks. To prevent malpractices in sanctioning of loans, there must be policy interventions and strengthening of governance structures, he said.

Deviation powers

To set right this situation, the Finance Ministry and the central bank should make all members, including the Chairman and Managing Director and Executive Directors, of loan committees at the central office responsible for their decisions, said the chief of a public sector bank.

The power to deviate from the loan policy should be well-defined and there should be a limit to the exercise of such powers, he said.

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