A change in the banks’ holding structure giving them functional autonomy, accompanied by accountability, is a reform overdue.
The Central Vigilance Commission‘s (CVC) reported move to allow the Advisory Board for Banking and Financial Frauds (ABBFF) to vet cases of delinquency of over ₹3 crore, against ₹50 crore, is a step in the right direction. Lowering the threshold will lift the pall of fear that hangs over public sector bankers while making lending decisions. The ABBFF was set up by the CVC to examine the extent of lapses, if any, by senior bankers based on documentary evidence. Expanding its scope will vastly increase its caseload. The CVC has, thus, rightly suggested a separate board for cases between ₹3 crore and ₹50 crore. The CBI must also ensure that the disposal and closure of cases that do come to it are time-bound.
All lending decisions involve a judgement about risk and bankers are wary about being punished for a good faith call. Many bankers assume that the best protection against investigation is inaction. That must change. Bankers will be able to lend without fear when there is a distinction between genuine commercial failure and deliberate wrongdoing. The same applies to accepting haircuts to clean books of banks, which is the key to reducing NPAs. This, in turn, requires an ethos of investigation that is professional, quick and bereft of any element of a witch-hunt.
Independently, steps such as more rational set of instructions (following the 2018 amendment to the Prevention of Corruption Act) that protects against arbitrary criminalisation of decisions by bankers and public servants are welcome. In tandem, public sector banks need systemic reform to overhaul their decision-making structure and culture. A change in the banks’ holding structure giving them functional autonomy, accompanied by accountability, is a reform overdue.