At a time when public confidence in banking has been shaken — 16% of banks’ asset portfolio is stressed, 11 public sector banks are in need of what banking regulator RBI calls Prompt and Corrective Action, a scam worth several thousand crore rupees has come to light as having been an ongoing practice at the country’s second-largest public sector bank and allegations of omission, if not commission, at the level of senior bankers at high-profile private sector banks refuse to go away — the government and the RBI appear to have taken the call that individual careers and reputations can be sacrificed for restoring public confidence in banking, the goal of paramount importance at the moment.
It is a tough choice, but it makes sense to err on the side of caution. It is on this ground that the RBI has intervened to cut short Shikha Sharma’s term at the helm of Axis Bank.
Fairness demands that the regulator treat public sector banks and their chiefs with equal dispassion, although few of those who presided over the creation of assets that have turned sour continue to lead their banks.
Fairness also demands that the regulator and the public at large factor in the nonbanking factors turning many loans non-performing.
Take the power sector. About 75,000 MW of power generation capacity is in trouble because coal supply is uncertain, regulatory pronouncements have the consistency of quicksand or bankrupt state power utilities fail to enter into or honour power purchase agreements. Banks carry the can for the loans to these projects.
At the same time, the RBI and the boards of the banks in question must investigate the circumstances that led to an assessment of subpar management at Axis Bank and other banks.
It is important to nail the wrongdoing, if there is any, and, if there is none, to clear the cloud of suspicion hanging over the heads of professionals who have served long and hard in the business of mediating the public’s savings into credit, enabling thriving businesses that create jobs, generate investor wealth and returns, pay taxes and drive the nation to prosperity.