Raising the bar

Government is right to enforce high governance standards in PSU banks. Private banks too must follow suit.

By: Editorials | Updated: May 16, 2018 1:15:05 am
Jammu and Kashmir, J-K ceasefire, J-K unrest, J-K govt, BJP-PDP govt, Mehbooba Mufti, Indian Express editorial Rajiv Kumar, secretary, department of financial services, reportedly said this is part of a cleanup in PSU banks.

On Monday, soon after the CBI filed a chargesheet in the Rs 14,000-crore fraud case involving diamantaire Nirav Modi at the state-owned Punjab National Bank (PNB) and named the CEO of Allahabad Bank, Usha Ananthasubramanian and two executive directors of PNB, the government directed the boards of both the banks to divest these officials of all financial and executive powers. Reports based on information from CBI officials indicate that Usha, a former CEO of PNB, had allegedly failed to “take cognisance” of the fraud during her tenure in the bank in 2016. This was at a time when the RBI had advised banks to be diligent on transactions relating to trade credit and report frauds. Recently, the CBI 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 who is also a bank chief, besides three independent directors for allegedly defrauding the bank of Rs 600 crore with regard to a loan disbursed to a group companies owned by the NRI businessman, Sivasankaran.

Rajiv Kumar, secretary, department of financial services, reportedly said this is part of a cleanup in PSU banks. There is no dispute that any action against officials on grounds of mismanagement or negligence — be it in the government or in state-owned banks — that leads to the erosion of wealth is to be welcomed. Such action, even if painful in the medium-term for lenders, borrowers and the broader economy, is worth the trouble if it ultimately leads to significant changes in governance in banks and lending practices.

But similar governance standards should apply to private banks as well. For instance, the ICICI Bank board has been found wanting in acting against charges of conflict of interest involving its CEO, Chanda Kochhar. It cannot be that corporate governance standards vary across listed companies and individual CEOs, serving and former, are judged differentially. That’s why it is important for both the government and investigating agencies to not only act fairly but also to be seen doing so. For, there is much at stake in ensuring a healthy and competitive banking sector.

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