Citing the need to protect prudent commercial decisions of bankers, the Finance Ministry said Tuesday it has “done away with” holding MDs and CEOs of public sector banks personally responsible for compliance in dealing with large-value frauds committed by bank officials.
In a statement, the Ministry said that it has delegated powers to the boards of state-owned lenders to put in place a “suitable mechanism” for ensuring “compliance with the various timelines laid down in RBI (Reserve Bank of India) and CVC (Central Vigilance Commission) circulars relating to fraud monitoring and reporting”.
The Finance Ministry said that distinction would be made between “genuine commercial failures and culpability”.
The move comes at a time when a number of bank chiefs are facing investigative action. These include Usha Ananthasubramanian, former MD & CEO of Punjab National Bank (PNB); Arun Kaul, former UCO Bank CMD; Archana Bhargava, former CMD at United Bank of India; Yogesh Agarwal, former Chairman, IDBI Bank; and, R K Dubey, former CMD of Canara Bank.
Moving to calm fears
The move is aimed at placating fears among public sector bankers, who face the threat of investigative scrutiny, sometimes even for loans granted after appropriate appraisal and assessment that turn out to be non-performing. The move is important given that bankers are going slow on granting credit even when it may make business sense.
As per a 2015 framework on “large fraud reporting”, MD and CEOs of banks must focus on fraud prevention to enable effective investigation of fraud cases, and prompt and accurate reporting to appropriate regulatory and law enforcement authorities. Bank heads are also required to monitor and report early warning signals relating to potential stress accounts.
To reduce delays in internal vigilance cases that affect morale of bank employees, the Ministry said it has now directed banks to set up a committee of senior officers to monitor progress of pending disciplinary and internal vigilance cases. The proposed committee will frame timelines to reduce delays in deciding such cases, it said.
Such procedural delays adversely affect morale of employees and breed inefficiencies in the system, the Ministry said.
Last month, Finance Minister Nirmala Sitharaman had suggested that such vigilance cases have to be pursued or closed so that they do not remain pending forever.
The government has also asked state-owned banks to refer all cases of suspicious frauds in NPA accounts over Rs 50 crore to the Advisory Board for Banking and Financial Frauds (ABBFF).
Considering the complexities involved in the commercial decisions of managers in public sector firms, the CVC set up the ABBFF for a mandatory first-level examination on suspected frauds in excess of Rs 50 crore, involving public servants equivalent in rank to GMs and above, before enquiry or investigations begin.
Along with these steps, the government has already incorporated Section 17A in the Prevention of Corruption Act, requiring prior permission before initiating investigation against a public servant.
Among the top public sector banks who have faced or facing investigation include, PNB’s Ananthasubramanian, and K V Brahmaji Rao and Sanjiv Sharan, both former Executive Directors at PNB — in the Nirav Modi loan scam.
In April 2018, the CBI had booked former UCO Bank CMD Kaul and others for allegedly cheating the bank to the tune of Rs 621 crore in the Era Engineering Infra India Ltd case. A number of bank employees at lower level in the public sector banks are also facing internal vigilance enquiries, which drag on for long.
Apart from these cases, the CBI had, in March 2018, booked Dubey, former CMD of Canara Bank and two former executive directors of the bank — Ashok Kumar Gupta and V S Krishna Kumar for alleged fraud of Rs 68.38 crore.
Among other cases, Bhargava, former CMD at United Bank of India; Agarwal, former Chairman, IDBI Bank; and BK Batra, former Deputy MD, IDBI Bank; Sudhir Kumar Jain former CMD at Syndicate Bank, are some of the key bankers facing investigation in separate cases.
In a meeting with heads of public sector banks last month, the Finance Minister had assured that honest commercial decisions taken by bankers would be protected and a system put in place for handling fraud cases.
The government had announced putting in place a mechanism whereby notices issued by the CBI to banks will carry a registration number to avoid any scope for unauthorised communication and consequent harassment. It was also decided that no case involving banks would go to CBI without the banks themselves deciding to send it.
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