The government is planning to put in place a new loan-sanctioning mechanism for public sector banks which will be technology-driven and effectively minimize discretion available to the bank officers, two Finance Ministry officials said.
A new framework is being finalised by the finance ministry that will separate various functions such as loan appraisal, sanction, evaluation, disbursal and the post-disbursal monitoring of loan.
“A lot of the clean-up has taken place in public banks. NPAs have been recognised, provisions made and insolvency petitions initiated against defaulting borrowers. Now the task is to ensure that past mistakes are not repeated,” an official said.
This move comes in the backdrop of investigative agencies probing a number of bank officials for allegedly using discretionary powers to advance crores to defaulting borrowers. Last month, the CBI booked Syndicate Bank MD and CEO Melwyn Rego, who was deputy managing director of IDBI, along with several others in the Rs 600-crore IDBI loan default case. The CBI also booked former IDBI CMD Kishor Kharat, at present MD and CEO of Indian Bank, in the loan fraud case. In the biggest loan scandal of over Rs 13,000 crore at the Punjab National Bank, diamantaire Nirav Modi allegedly got fraudulent Letter of Undertakings issued in connivance with bank officials.
Currently, state-owned banks have internal thresholds that empower a general manager to advance loans up to a certain level. Large loans of, say Rs 25 crore and above, are approved by a regional credit committee to the executive committee of the central board of the banks.
The government has been nudging banks to build and use an electronic platform on which loan applications will be first logged in and then assessed on certain set parameters such as net worth of the company, its equity capital, reserves, level of free cash flows, debt equity ratio, repayment capacity among others.
In contrast to the present level of acceptance of loan proposals especially from the corporate sector, the new platform will ensure that only the most viable proposals from a commercial perspective are accepted after technology and analytics are used for comprehensive due diligence.
The Department of Financial Services has held a series of meetings with public sector banks and sector experts to work out the modalities of this technology-driven platform for loan disbursal.
“The idea is to have separate set of verticals/officers dealing with various stages during the life cycle of a loan, including due diligence and sourcing, loan processing and underwriting, documentation and disbursal. While technology will drive loan sanctions and approvals, post disbursal monitoring of the covenants is expected to be done by a separate segment of each bank,” said a senior banker who is part of these discussions.
The government has also floated tenders for appointing an independent evaluation agency that will assess the performance of state-owned banks on a total of 60 parameters and the results of this assessment will be made public. The Finance Ministry has pressed PSU banks to put in a place a system-driven grievance redressal mechanism for customers, with real-time complaint status tracking by complainant.