Editorial

Banker’s blues

| Updated on November 06, 2021

The arrest of a former SBI Chairman without following due process sends out wrong signals to bankers

The shocking arrest and 14-day judicial remand of Pratip Chaudhuri, former Chairman of State Bank of India, on criminal charges pertaining to a loan recovery decision, could not have come at a worse time for India’s credit ecosystem. It has happened exactly when the government is pulling out all stops to get bankers to shed their risk aversion and resume lending. Despite economic activity improving, credit flow to industry has grown at just 2.5 per cent year-on-year in September compared to last year. The Finance Ministry, in an effort to coax bankers into lending, only last week came up with a new Staff Accountability Framework to protect them from unnecessary scrutiny on bona-fide decisions relating to non-performing assets (NPAs) up to ₹50 crore.

The facts of the case seem to be that Garh Rajwada, a hotel project financed by SBI in 2007, remained inoperative for over three years with the account slipping into an NPA in June 2010. After recovery efforts failed, the bank obtained necessary approvals from its Board and sold the property to Alchemist ARC in March 2014 for ₹25 crore. Alchemist ARC in turn sold the property to an NBFC under IBC proceedings in December 2017. Pratip Chaudhuri had retired as SBI Chairman on September 30, 2013, and joined the Alchemist ARC Board in October 2014. The sum and substance of the charges levelled against him under sections 420, 409 and 120B of the IPC, seem to be that the property was sold to the ARC well below its alleged market price of ₹200 crore, thus allowing the final buyer to make a ₹175-crore profit. The case is now sub-judice and the Court is the best arbiter of its merits. But prima facie, allegations of ‘profit’ appear flimsy, as it is accepted practice for banks offloading distressed assets to ARCs at haircuts of 85-90 per cent.

Various parties to this episode do not come out smelling of roses. Due process for the arrest appears to have not been followed by the Rajasthan police which had earlier closed the case for lack of sufficient evidence. SBI has defended itself saying that all due processes have been followed on the sale to the ARC, but has distanced itself from the episode by underlining that it is not a party to the protest petition on the basis of which arrest warrants were issued. Given the impact that just this one episode can have on the morale of the country’s top bankers and the credit ecosystem, the Government should heed the Indian Banks Association’s call for further structural safeguards to protect bankers from prosecution for bona-fide decisions.

Published on November 05, 2021

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