Finance ministry dashes letter cautioning them to being influenced by position of the borrower
Rising cases of frauds in the banking system has forced the finance ministry to send out a strongly worded letter to banks, cautioning them from being swayed by the influence or the position that a borrower may hold while approaching banks for loans.
The government wants to root out corruption and avoid cases like Bhushan Steel where the managing director was allegedly caught giving a bribe to chairman and managing director of Syndicate Bank, and the CBI inquiry into IDBI Bank sanctioning loans to Kingfisher Airlines.
"No such decision should be taken out of any other extraneous considerations such as the influence or the position that the borrower is holding," said an office memorandum by the Department of Financial Services to chiefs of all public sector banks.
The banks and financial institutions should take all commercial decisions in the best interest of the organisation without any fear or favour, it said.
It appears that there is a message that banks should not be pressurised to sanction loans, even for transfer and posting.
The finance ministry letter also said that banks must have a clear objective for commercial decisions as well as a laid out transfer policy which should be followed strictly.
The banking system, particularly the public sector banks, have gross bad loans of 5.33% of total advances at the end of the quarter-ended September 30, 2014.
The banking conclave, Gyan Sangam, was held on January 2-3, 2015 at Pune where the Prime Minister Narendra Modi interacted with the chief executives of public sector banks and financial institutions.
"During the discussion, it was conveyed from the highest level in very clear terms that the government will not interfere in the working of the Banks/FIs," the office memorandum said. In fact, a communication was sent to all the public sector banks and financial institutions on January 5, assuring them about functional freedom.
It also mentioned that every bank and financial institution should have its own objective, well laid out transfer and posting rules, which should be followed strictly. No exception should be made in such rules at the behest of any recommendation given by anyone including anybody from the Ministry of Finance. "If, for genuine reasons, any exception to the rule is made, it should be done only by CMD by giving proper reasons," it said.
Every bank and financial institution should have a robust grievance redressal mechanism for borrowers, depositors as well as staff. The aggrieved person should have an opportunity to represent his case at least at two levels, the memorandum said.
"It is trusted that the freedom given to banks and financial institutions by assurance of non-interference will be used in the most objective manner. However, if any complaint comes to this Department from anybody informing that exceptions were made in certain cases without any objective basis, and in order to favour somebody, the person taking such decision would be accountable," the memorandum cautioned.
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