Judgments misplaced in PSBs – Accountability assessment under scanner

Regulator as well as government became sensitive to the issue of accountability influencing lending decision adversely  , which started affecting economy. Formation of the committee for the purpose indicates the concern of the government. PSBs https://economictimes.indiatimes.com/industry/banking/finance/banking/public-sector-banks-may-follow-a-uniform-practice-on-employee-accountability-for-bad-loans/articleshow/80120762.cms?from=mdr 

Views emerged that reference to the outside agency  (often referred as witch hunting) are the reasons for the slow down . While it is a fact that questioning the decision making by a large number of officials  with good track record of handling  credit portfolio have an effect on the mindset of the officials and  creates an unassuming apprehension about accountability.   Officials engaged in decision making become  hesitant to take decision in apprehension of accountability.  Why such situation emerges. Growth in the number of accountability and slow down in credit growth is statistically evident, but one must introspect to understand the real reason for the relation. Addressing the issue require an in depth study of systems & procedures in public sector banks .The matter cannot be treated as bank specific or people centric, rather it is a problem generated from the management structure and the systems & procedure adopted by the public sector banks.

What is the process of decision making for assessment of accountability in public sector banks? Normally, in case of aberration, the concerned department engages one official to investigate the reason for the deficiency and identify non compliance. There are departments like inspection etc, who are engaged for such identification. They go by the rule book and try to identify the areas where there are departure from the general  guidelines issued by the bank.  These people are drawn from department where they may or may not be involved in the process of decision making. Thereafter the report, mostly unaltered , are forwarded to vigilance department which is headed by CVO, who is generally deputed from other bank, but supported by officers from the same bank. After assessment, based on the degree of deviations  and the nature of the same, reference is made to external agencies for investigation. 

Decision makers are either front line officials, head of branches/zones or officials from credit department responsible for assessment and sanction of the proposal. They work under various stressed conditions. The  task for increase in advance as well as maintaining the standard status of the account is  bestowed on these officials . Business is subject to volatility and an account which is running well at a time may become impaired, based on market movement. There was a practice of extending support to the borrower at the time of difficulty for certain period, so that the borrower could survive the shock and return to normal business. Many corporate which are doing well at present faced crisis previously and were rescued by the banks at the time of difficulty. All the decisions taken at that point of time may not strictly adhere to regulatory guidelines. For example, handholding operation was permitted by RBI during  2008-09 due to  global slowdown.  There were  units which were not directly impacted by the global slowdown but there were secondary effect on their  business. Bank’s resuscitated them, but the supports extended could not have been strictly as per norms since such eventualities were not envisaged at the time of formulation of the policy. Over a period of time , if it is investigated , it is likely that the official responsible for taking the decision might  not have  followed the rule book strictly.  Bank officials with experience develop an insight to extend support which are effective in most of the time , although the decision may go wrong occasionally . The present incidence of impairment of large number of account  is a result of such risk aversion. 

Let us further examine the reason for such instances.  Major source of revenue in a bank is credit and investment. In absence of HR professionals, placement of officers is more impression based. While at the beginning general exposure is provided to recruited officers in various departments / branches , based on  potentiality are observed based on potentiality officers  are identified for various segments. Credit being the bread earner, emphasis is given to officials with flair on  making /supporting credit decisions and they also receive priority in elevation along the hierarchy. Similarly, based on their placement some officials show their potential in inspection/vigilance/ planning etc. After  a point of time, once they move up in the ladder, their proximity to the high up becomes a major reason for their progress.  There are external influences also , which facilitates promotion and posting , although there are strict  guidelines  restricting such interventions. 

The official engaged for assessment of   accountability   at a point of time may not be familiar with the challenges faced by the concerned official. There may be lack of understanding about the situation which prompted the official to take the decision. The investigating official will go by his/her impression about the objective of the guidelines, oblivious of the bank’s benefit at that point of time. There are interpersonal conflicts  as well as union intervention , which prejudice the assessment of an official . In absence of professional HR persons, performance assessment is prejudiced by the impressions/ influence and in many occasions placement & promotions are result of impressions of higher authorities. 

Let me refer to an event I heard from one senior level executive. In a bank one branch suddenly increased exposure multiple times by discounting LC bills. The corporate office felt that there may be adverse intensions and deputed one official from inspection department , who had reported  adversely against the branch head citing several irregularities. The head of inspection  had some suspicion since he was familiar with the intent of the branch head. He visited the  branch and found out that the decisions taken  by the branch head is as per norms and and are in accordance with the latest  guidelines issued by the bank ,  keeping bank’s interest in mind. Inadequate knowledge and lack of exposure of the previous inspecting officer resulted in  adverse reporting. Such instances are in large number , specially in credit dispensation, which affects the career of efficient officials ( but there are genuine faults also, but the number of such deviation is considerably less).

In most of the offices /branches the role of the employees/ officers are not documented in a comprehensive manner and  aspersions are inflicted on persons although they may not be responsible for the assignment. In absence of any such document, the accountability report makes the incumbent responsible. For example visit of the unit is a responsibility, but it is a collective responsibility and by not distributing the responsibility, the relationship manager is exposed to criticism. Such aberration could have been avoided if other officials were also involved in unit visits. 

The discussion drives us to the point that an essential prerequisite for creating a conducive atmosphere of decision making is to professionalize HR system of public sector banks, by creating a separate vertical for the purpose. The performance of each official has to be examined on merit and assessment has to be based on  scientific evaluation. Promotions, postings as well as assessment of accountability should  be done based on scientific HR principles. It is also necessary to review long pending  against bank officials even after superannuation , which will encourage the present day decision makers to take decision without having any inhibition about accountability in future.