So far it was only bankers who were worried by the CBI action in loan default cases but now the fear extends to independent directors — not just on the board of staterun lenders but on other PSU boards too. The inclusion of two independent directors of IDBI Bank — former Bank of Baroda CMD P S Shenoy and BSE chairman S Ravi — in the FIR and raids carried out on some IDBI executives who were not named in the FIR is making the entire banking sector jittery.
Latest data released by the Reserve Bank of India showed that on a year-onyear basis, non-food credit growth rate remained static at 8.4%, with growth in loan flow to industry estimated at 0.7% on the back of 1.9% decline a year ago. Data showed that credit to infrastructure, metals, cement, chemicals, petroleum and coal products fell during the period partly due to surplus capacity as also the stressed finances of a large number corporate houses.
Given the background, the action in a case related to loans to businessman C Sivasankaran could not have come at a worse time as it involved top executives. At least two former IDBI Bank chiefs, M S Raghavan and K P Kharat, and exdeputy MDs M O Rego and B K Batra and current deputy MD G M Yadwadkar are also named in the FIR and has raised fears that the investigating agency’s decision to book members of the executive committee will impact decision making at the top level and impact investment flow.
Several bankers and independent directors told TOI that the CBI had gone overboard since Nirav Modi and Mehul Choksi fled the country, naming executives in cases of which many related to business failure without malafide intent. A former finance ministry officer said the agency’s decision to name independent directors was particularly worrisome as this category of board members had limited knowledge of an entity’s dayto-day functioning. “There is certain protection that the law provides to independent directors given the nature of their job.
They are not directly involved in the company’s operations,” added a retired secretary, who is on the board of several blue chip companies. An independent director, who agreed to speak to TOI, on the condition of anonymity said bank boards dealt with several loan-related cases and the decision was based on the proposal put forward by executives, which were then reviewed by a credit committee before the directors gave their stamp of approval.
“Given the long list of items on the agenda, the board spends only a few minutes on most proposals. If this is the type of action that is going to be taken, then people will either spend hours on each proposal or simply stop being independent directors,” the director said. Typically, at a board meeting, a detailed presentation is made by the bank management on large loans and the proposal is vetted by the credit team and a decision is taken on the recommendations of the credit committee.