Dignity compromised
The economic survey 2018-19 identifies private investment a a key for growth and RBI warns against excess lending, which gives a mixed signal regarding sovereign expectation. In the present context both the statements are true , which makes the task more complicated. How to achieve the objective. Generally the prognosis is on the manifestation of the ailment, not on the real reason. Political cynicism?
Banking sector was the catalyst for growth. The last century observed fast growth of economy wherein banking sector played a major role. The policies adopted by regulator encouraged competition and fund flowed to all the segment, which acted as a booster. The flow was accentuated by the “golden quadrangle”, resulting in a strong boost to the core sector of the economy. Spirit of competition was inculcated in the banking sector and banks shifted their stance from security to profit, which required tough decisions including vrs
Business is subject to fluctuation and cyclicality is recognised in basel guidelines, which aptly recommended a buffer for such eventualities. Promoted by renowned business organisations , banking sector was aware of the fluctuations and offered hand holding to corporates whenever there were any down turn in the business. Many present day established corporates faced adversities, but could come out of crisis with the help of support from the bank. It is true that impairment norms were not as rigid and decision makers could apply their wisdom in extending the degree of support to the obligors. Credit decision makers were regarded by the business houses as responsible guides , who exercised their discretion to hold their status, so that they can function normally.
The regulator agreed to accept the basel norms and gradually introduced impairment norms restricting the default period for declaring as NPA, which was intensified at the beginning of present century The legal system was slow in disposal , as compared to western counterparts and impairment continued to grow. There were political interventions in the sanctioning process and principles of lending were diluted. There were organisations specialised for project appraisal, which were converted to Universal banks and banks (generally engaged in working capital finance) were encouraged to go for project lending. Prime banks started syndication as a separate venture. There were incidence of large defaults and the officials responsible for taking the decision were taken to task.
Bank officials were subjected to investigations , which involved considerable time , resulting in sacrifice of their promotion and status and even family life. Although subsequently many of them were absolved , but the process weakened their morale and affected the lending decisions. During the downturn of the business, bank officials (in unassuming apprehension about accountability) started shying away from taking crucial decisions which affected the system in two ways. One, degree of default accentuated in case of crisis faced by the obligor and second new business were considered only after 50% or more security is offered. As a consequence default went up with less credit sanctions. Bankers shifted their attention to retail lending , where the risk is relatively low. The credit growth became a casualty.
It is time that the policy makers give a serious thought to improve decision making. There is virtually no accredited HR personnel in public sector banks to ensure that their morale is not affected. The dignity of the bankers should be restored. There are many bank officials who had sacrificed their best part of life for the causes of banks, only to be defamed by the process. There is no professionals engaged in identification of accountability and the assessment done by the concerned departments are influenced by individual judgements. Even long after superannuation, bank officials are called for investigation. Training program launched by NIBM for officials responsible for staff accountability truly mentioned in their brochure that the erroneous system of staff accountability has affected the lending decision making and the training program intends to improve the mechanism.
Economic growth is plausible only if the lending decision making is improved in the banking system , which is possible only if the dignity of the decision makers are established. I remember one Indian entrepreneur having large network of business overseas,came to India for establishing a manufacturing unit. In course of discussion I had mentioned that it is possible to receive bank fund only if 50% or more collateral (non project)is offered. He was astonished and asked how can I, since I would be contributing 40% of the stake and I have plans to establish more units. He went to check up with various banks and informed that he decided to quit his plan. In this process we lost an investment and expertise. Small and Mid corporate are more vulnerable. They may have their plans and may be some stake, but it is unlikely that banks will extend credit to such units. It is time that we introspect and reinstate the dignity of the decision makers by appointing professional HR persons to manage personnel departments, identify trained officials with knowledge in credit sanction & dispension to identify staff accountability and take such steps which ensure that the decision makers become willing to take part in the growth process. A child learns no from what the parent are telling them to do, but from observing what their parents are doing. New generation of executives are observing their seniors and their future decisions would depend upon the measures taken at present.
