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Wednesday, December 01, 2021

Bonafide decisions leading to NPAs: New accountability norms to protect bankers

The move is aimed at comforting bankers in taking decisions on credit sanctions and at removing the fear of investigative agencies for commercial decisions that turn bad.

By: ENS Economic Bureau | New Delhi |
November 1, 2021 3:45:16 am
These guidelines shall be implemented with effect from April 1, 2022, for accounts turning NPAs starting next financial year. (File)

The Finance Ministry has issued norms to guide state-owned banks in adopting a uniform staff accountability framework for NPA (non-performing asset) accounts up to Rs 50 crore. The step has been taken to protect bankers in case bonafide business decisions go wrong and lead to NPAs.

The move is aimed at comforting bankers in taking decisions on credit sanctions and at removing the fear of investigative agencies for commercial decisions that turn bad. These guidelines shall be implemented with effect from April 1, 2022, for accounts turning NPAs starting next financial year.

Bankers have provided feedback to the government in past meetings that sometimes decisions on credit sanctions are slow as banks fear investigative agencies may come after them in case the accounts turn NPA.

The Department of Financial Services (DFS), under the Finance Ministry, “vide its order dated October 29 advised broad guidelines to be adopted by all public sector banks (PSBs) on ‘Staff Accountability Framework for NPA Accounts up to Rs 50 crore’ (Other than Fraud Cases)”, the Indian Banks’ Association (IBA) said in a statement. Banks have been advised to revise their staff accountability policies based on these broad guidelines and frame the procedures with approval of the respective boards, it said.

At present, different banks follow different procedures for conducting staff accountability exercises. Staff accountability exercise is carried out in respect of all accounts which turn NPA.

“This approach not only adversely affects staff morale but also puts a huge strain on the bank’s resources. While punitive action need to be taken against the officers having malafide intent/involvement, it is essential to ensure that bonafide mistakes are dealt with compassion. There is a need to protect the people taking bonafide business decisions in this competitive environment,” the IBA said.

Post revelations of over Rs 13,000 crore of loan fraud done on Punjab National Bank (PNB) by diamond trader Nirav Modi in 2018, seniors officials of the bank were hauled up and those involved had to face tough action. This and a series of other unrelated frauds led to a overall environment of PSBs turning extremely cautious and risk averse even in case of bonafide corporate loans. These instances were seen as stalling credit deployment, which is crucial to support economic growth.

In December 2019, Finance Minister Nirmala Sitharaman assured the heads of state-run banks with promises of protection from undue harassment from investigative agencies into their lending decisions. She had said after a review meeting with top bankers from state-run banks that “fear of 3Cs — CBI (Central Bureau of Investigation), CVC (Central Vigilance Commission) and CAG (Comptroller and Auditor General)” was holding back banking decisions. “Decision making was getting affected” due to “concerns of bankers,” she had said.

The government has since been trying to address this issue.

The fresh set of guidelines will also help bankers take credit decisions faster and help support the economy. “Also, at a time when the country is in need of an economic boost, slow credit delivery to industries due to the fear of implication, is a matter of concern and needs urgent address,” the IBA said.

Banks will have to complete staff accountability exercise within six months from the date of classification of the account as NPA. It further said that depending on the business size of the banks, threshold limits have been advised for scrutiny of the accountability by the chief vigilance officer (CVO). Past track record of the officials in appraisal or sanction/monitoring will also be given due weightage.

Banks with the approval of their board may decide on threshold of Rs 10 lakh or Rs 20 lakh depending on their business size for the need of examining the aspect of staff accountability, it said.

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