Dheeraj Tiwari, ET Bureau | 16 Dec, 2013, 04.00AM IST
NEW DELHI: In an attempt to stem the tide of rising bad loans at Indian lenders, a lobby group of banks has directed its members to ensure that their staff neither give nor act on verbal orders for sanctioning loans.
The Indian Bank's Association (IBA) issued the directive recently after the Central Vigilance Commission pointed out that junior executives at some banks were "coerced" to sanction loans on verbal orders from their superiors.
"During some vigilance complaints it was reported that loans were initially sanctioned on verbal orders," a senior government official said, confirming the IBA directive. "This had led to discrepancy as junior officers had claimed that they had sanctioned loans after receiving orders to expedite the case from senior authorities."
The official said the IBA move will not only instill better governance practices at banks but also check their rising non-performing assets or bad debts. According to the finance ministry, gross non-performing assets of state-run banks rose to 1.92 lakh crore, or 3.99% of their gross advances, in June from 1.64 lakh crore in March.
The IBA move also comes at a time when the Central Bureau of Investigation filed a case against a deputy managing director of the State Bank of India for allegedly accepting bribe to sanction a loan. An internal panel of the bank, however, said that the loan appears to have been sanctioned in the "ordinary course of business".
The finance ministry has taken a series of measures recently to curb non-performing assets of state-run banks.
It has asked banks not to lend further to business groups that have willfully defaulted on repayment of past loans.
Financial services secretary Rajiv Takru had earlier said that financial institutions and banks would do well to look at the entire group, its functioning, management style and their exposure to that group.
Bankers, however, say it will be difficult to implement such a measure in letter and spirit. "Trust has been violated at both middle and senior management at banks. So, to blame the top management for individual action will be irresponsible," the chairman of a state-run bank said on condition of anonymity.
"Instances have been pointed out where senior officers have not taken direct responsibility and juniors were made a scapegoat. In banking space, strictly all action should be accounted for at all levels," said MP Shorawala, an independent director at the Central Bank of India.
Amid-level banker at United Bank of India said there are compulsions at the junior level when verbal orders are issued from the top brass.
"It is a Catch-22 situation because ultimately your performance is appraised by your seniors. If you only go by written orders, then you run the risk of being classified a non-performer or too bureaucratic in approach," he said.
The Indian Bank's Association (IBA) issued the directive recently after the Central Vigilance Commission pointed out that junior executives at some banks were "coerced" to sanction loans on verbal orders from their superiors.
"During some vigilance complaints it was reported that loans were initially sanctioned on verbal orders," a senior government official said, confirming the IBA directive. "This had led to discrepancy as junior officers had claimed that they had sanctioned loans after receiving orders to expedite the case from senior authorities."
The official said the IBA move will not only instill better governance practices at banks but also check their rising non-performing assets or bad debts. According to the finance ministry, gross non-performing assets of state-run banks rose to 1.92 lakh crore, or 3.99% of their gross advances, in June from 1.64 lakh crore in March.
The IBA move also comes at a time when the Central Bureau of Investigation filed a case against a deputy managing director of the State Bank of India for allegedly accepting bribe to sanction a loan. An internal panel of the bank, however, said that the loan appears to have been sanctioned in the "ordinary course of business".
The finance ministry has taken a series of measures recently to curb non-performing assets of state-run banks.
It has asked banks not to lend further to business groups that have willfully defaulted on repayment of past loans.
Financial services secretary Rajiv Takru had earlier said that financial institutions and banks would do well to look at the entire group, its functioning, management style and their exposure to that group.
Bankers, however, say it will be difficult to implement such a measure in letter and spirit. "Trust has been violated at both middle and senior management at banks. So, to blame the top management for individual action will be irresponsible," the chairman of a state-run bank said on condition of anonymity.
"Instances have been pointed out where senior officers have not taken direct responsibility and juniors were made a scapegoat. In banking space, strictly all action should be accounted for at all levels," said MP Shorawala, an independent director at the Central Bank of India.
Amid-level banker at United Bank of India said there are compulsions at the junior level when verbal orders are issued from the top brass.
"It is a Catch-22 situation because ultimately your performance is appraised by your seniors. If you only go by written orders, then you run the risk of being classified a non-performer or too bureaucratic in approach," he said.
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