Corporates fear lending freeze in PNB fallout

India Inc has raised serious concerns over the mega fraud at Punjab National Bank (PNB) slowing down corporate lending.

Corporate houses and various industry groups have cautioned that lending to corporates should not be choked as a fallout of the PNB fraud at a time when credit growth is about to recover and the economy set to grow at a higher pace. They have also called for better control systems to check financial frauds and also suggested a gradual reduction in government holding in public sector banks (PSBs).

"It is something the country can ill-afford at a time when the credit growth was about to recover and the economy was set to grow at a higher pace," said Assocham, one of the apex trade associations of India.

It has cautioned against allowing the alleged fraud to halt the entire system of corporate lending as top functionaries and employees of the state-owned banks may get demoralised.

A multi-probe investigation is currently on with the Enforcement Directorate, the Central Bureau of Investigation and Serious Fraud Investigation Office (SFIO) investigating different aspects of the fraud ever since it has unfolded. Initially, the fraud was pegged at Rs 280 crore, but soon it reached over Rs 11,300 crore and could reach over Rs 20,000 crore as more skeletons tumble out of the closet.

Assocham Secretary General D S Rawat said while long-term solutions like privatisation of banks can be sought, the need of the hour is to rally around honest bank officers and honest business entities which have built trust on each other.

"Let one or a few black sheep not derail our financial system, which is resilient enough to withstand this kind of shocks, though ideally such jolts are better avoided and averted through systemic reforms," Rawat said.

Assocham said the pick-up in the domestic economy would require higher imports. "Both imports and exports are key to our economy and we have come a long way in scaling up the interface between the government agencies and the trade over the years. It is time to correct the systems which had allowed the misuse and move on with the task of achieving higher economic growth," said the industry body.

"While we need to ensure safe and sound functioning of the system and not allow loopholes like those in the PNB system of money or guarantee transfer, let banks not over-react and hit the trade and industry," said Assocham.

The Confederation of Indian Industry has, meanwhile, called for a dilution in the government stake in PSBs. "The government should lower its stake in PSBs to 33% gradually and adopt a twin strategy for tackling financial frauds, including better monitoring and supervision of banks and spread of best corporate governance standards," it said.

CII president Shobana Kamineni said in a statement that the government, regulators and industry must act fast to address systemic risks in the financial sector. "The three key solutions for the banking sector are better management and operational efficiencies, use of technology such as blockchain and big data analytics, and lowering government shareholding in public sector banks," she said.

According to the CII president, financial malfeasance perpetrated by a collusion of unethical business entities and corrupt officials should not lead to a situation where funds to industry get choked.

"It is time for the government to consider consolidation of PSBs and develop a few strong banks adhering to the best standards in governance, accountability and transparency. Currently, shareholding of government in banks has been rising with recapitalisation attempts, and these should be brought down to 52% at the earliest as intended by the government," she said.

STAY ON TRACK

• Industry chambers have called for better control systems to check financial frauds
   
• The Confederation of Indian Industry called for a dilution in the government stake in PSBs

(With inputs from PTI)