Well ahead of Saturday, when the CBI arrested S K Jain, the chairman and managing director of Syndicate Bank, on allegations of taking bribe for approving loans for two corporate entities, the rot in the public sector bank’s lending process had started showing up in the form of a sharp spurt in non-performing assets (NPAs). The number of bad loans at the Bangalore-based bank quadrupled in the five years since 2008-09.
While Jain held the position of CMD at the bank for a little over a year before his arrest, the sharp rise in NPAs over the four-year period between 2009-10 and 2012-13, according to banking sector insiders, is indicative of the regulatory authorities overlooking the worsening NPA situation of the bank and the reasons for the same.
In response to an RTI filed by The Indian Express, Syndicate Bank confirmed that the total number of loans that had turned into NPAs rose from 40,706 in March 2009 to 1,53,959 in March 2013. Alarm bells should have started ringing in the year 2011-12 when the number of NPA accounts more than doubled from 73,530 in 2010-11 to 1,63,697 in 2011-12.
A loan where the borrower fails to make the interest or principal payment for 90 days is classified as an NPA.
Over the five-year period, there was also a rise in corporate loans (above Rs 5 crore) turning into bad loans at the bank. While the number of such accounts stood at 13 in 2008-09, it rose to 24 by the end of 2012-13 and the value of such loans quadrupled from Rs 174 crore in March 2009 to Rs 731 crore in March 2013. The net NPAs as a percentage of advances of the bank rose from 1.07 per cent in March 2010 to 2.62 per cent in March 2014.
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While several public sector banks witnessed a jump in their NPAs over the last five years, Syndicate Bank was among the worst performers.
The CMDs of state-owned banks have wide powers on loan sanctions. The credit approval committee (CAC) that comprises the CMD, an executive director and two general managers has the power to sanction loans of up to Rs 400 crore. The committee does not even have to go to the board of directors to seek its approval for such loans.
Industry experts confirmed that the CAC has the power to even write-off loans of up to Rs 400 crore, which is being identified as a major systemic loophole. Insiders said that in most of the cases, the CMD has complete say in approving loans of up to Rs 400 crore as the ED and the general managers rarely raise a dissenting voice.
While several top bank employees have been arrested in the past for misconduct, Jain is only the third (having a rank of executive director or above) to have been arrested while still in office. In 1991, K M Margabandhu, the then CMD of UCO Bank, was arrested in connection with the Harshad Mehta scam, and then in 1996-97, T P Karunanandan, then ED of Bank of India, was arrested for his involvement in a scam in Indian Bank where he was appointed earlier.