An outsider to India or millions of customers of over two dozen commercial banks in the country may be forgiven if they are left wondering whether India’s banking system is broke. Hardly a fortnight goes by without the CBI, the country’s federal anti-corruption agency, making public action against officials of state-run banks, against the background of reports of rising bad loans and governance issues at many banks, including storied private entities.
Last week, the CBI said it has filed a case against 15 former officials of IDBI Bank including a former CMD of the bank, another former chief who is now CEO at another state-owned bank, and a former senior official, also a bank chief, besides three independent directors, for allegedly defrauding the bank of Rs 600 crore with regard to a loan disbursed to group companies of NRI businessman, Sivasankaran. In its defence, IDBI Bank has said it had granted a loan to Axcel Sunshine, which became an NPA in December 2015 and that the loan has been fully provided for and that the lender had launched recovery proceedings. Over the past year and the last few months, several other bankers too have been named by the CBI. The agency seems happy to suggest that many senior bankers are involved in alleged malfeasance and provide a running commentary while questioning bankers, even before filing a chargesheet. This recalls an incident under the UPA government, when the CBI registered a preliminary enquiry against a former SEBI chairman and other regulatory officials only to retract it later. It is important that the agency goes about its task professionally to bring cases to fruition without giving the impression that it is on a fishing expedition. The agency ought to keep in mind the wider consequences of its actions to the country’s troubled banking industry and the knock to individual reputations. After all, banking is a business run largely on trust. Already, with almost a dozen banks under the Prompt Corrective Action framework, the ability of banks to lend is severely curtailed.
Some are tempted to see a parallel in Chinese President Xi Jinping’s crackdown against corruption that helped him to consolidate power. But surely, the government, now in its final year, would be mindful of not wanting to leave behind a legacy of a banking system that is hobbled, and bankers who are fearful of lending, specially when economic recovery is underway. India’s banking sector should not be reduced to the same fate as the telecom sector, which was the country’s most competitive sector post liberalisation.