Getting banks to lend will be a challenge for Vinod Rai
It is ironic that Vinod Rai, the former Comptroller and Auditor General (CAG), should be talking of getting banks to start lending again. As chairman of the Bank Board Bureau, he has said the board’s first priority is to kick-start lending activity among state-run banks without fearing any bureaucratic overhang. But in his earlier role as the CAG—together, the CAG office, the CVC and the CBI comprise the dreaded 3Cs of India’s public sector world—Rai would have been entirely focussed on scrutinising these very loans to check whether they had been disbursed properly or whether the rules had been bent. Unfortunately, these probes, the accusatory tone of the conclusions drawn from them, together with the recent noise over defaults by Vijay Mallya and some other industrialists has created an impression that public sector banks in general are an irresponsible and corrupt lot. This has damaged the psyche of lenders, causing them to become over-cautious.
State-owned lenders have always operated under pressure, primarily from the powers that be; it is no secret that politicians over the years have used the banks to serve their own interests, which is why Indira Gandhi’s move to nationalise banks in 1971 was met with so much criticism. While it is easy to point fingers and accuse lenders of not having stood up to these pressures, it must be accepted that they are middle-class men and women and, like everyone else, would put their careers and families above everything else—if anything, the investigation has to be of the politicians who put pressure on banks to lend to certain industrialists. More importantly, and this is where the media has failed miserably, some lending decisions are bound to go wrong; in an economic downturn as sharp as the current one, it is not surprising that assumptions and estimates have gone awry. So, while it may appear banks have over-lent in many instances—and to be sure, they have—it is not always the case as is made out in the debased public discourse on NPAs and defaulters. The problem with bankers being subject to the scrutiny of CAG/CBI/CVC is that this will leave them scared and unwilling to take decisions. That will hurt corporate borrowers and, consequently, the economy. Those chastising the banks have not thought it important enough to point out that the legal system is skewed towards borrowers and that recovery mechanisms such as the Debt Recovery Tribunal (DRT) and Sarfaesi Act have failed abysmally—in FY14, DRTs passed orders on just R30,590 crore of the R236,600 crore that banks sought to recover. Had the DRTs not been so slow, no one would have been pointing fingers at banks today. If banks are to be able to lend, their decisions cannot be subject to casual review by the 3Cs—there has to be a rigorous scrutiny by a committee of top bankers before any inquiry is even contemplated. The finance minister is right in saying there needs to be a political and economic environment for banks to be able to recover dues, and he is also right in pointing out that settlements with borrowers should not to be viewed with suspicion. Similarly, if banks are to start lending again, it can only happen in an environment that doesn’t scare or scar them.