Mumbai: The finance ministry has sought an explanation from Corporation Bank chairman and managing director Ramnath Pradeep on charges against him by the Central Vigilance Commission (CVC) over the alleged violation of norms at the state-run bank.

Pradeep is facing eight key charges that include sanctioning loans to a few companies in contravention of regulations, extending a big-ticket loan to a tower construction company that had already defaulted on payments to another state-controlled bank, and changing rules in a bid to appoint a consultant at the bank, according to people familiar with the development.

Facing charges: Ramnath Pradeep.

“’Some people in the bank had moved the CVC against me. I am preparing a reply to these charges. I have done everything as per the rules, there are no issues," Pradeep told Mint on Wednesday.

The Corporation Bank chief may be asked to go on “compulsory leave", if the charges are proven, according to a government official.

Pradeep, who took over as the chairman and managing director of Corporation Bank in September 2010, is scheduled to retire on 30 September. Prior to this assignment, he was executive director, Central Bank of India.

According to a senior Corporation Bank official who did not want to be named, out of the eight charges, four are related to irregularities in extending advances and the rest to other issues, including management decisions.

After conducting a probe into the allegations, CVC had written to the finance ministry which, in turn, sought an explanation from Pradeep last week, the official said. According to him, the chairman was in Delhi on Tuesday to consult lawyers and prepare answers to the charges.

In the recent past, several corruption charges have been made against commercial bankers by various investigative agencies.

In November, during the so called bribes-for-loans scam, the Central Bureau of Investigation arrested eight senior officials belonging to nationalized banks and financial institutions for allegedly accepting inducements to issue loans to vested parties or leak vital information from their top committees. The officials were later released on bail.

There have been instances in the past when top officials of nationalized banks were forced to go on leave following corruption allegations against them. In 2003, the government had asked N.S. Gujral, then chairman and managing director of Punjab and Sind Bank, to go on leave following a CVC probe against him. Something similar happened to the chief of a Kolkata-based bank while the chairman of a bank in western India was not given an extension when his term ended, even though he hadn’t attained retirement age.

During the investigation into allegations against Pradeep, CVC had found that the Corporation Bank chief was instrumental in issuing loans to a tower building company in Madhya Pradesh that had defaulted to another state-run bank a few years ago.

Under the current norms, a bank cannot give fresh loans to a defaulter either to repay the old loan or for any other purpose.

“The loan was given to this company as it had the backing of Larsen and Toubro (Ltd)," Pradeep said. “It was fully safe."

On 1 June, news agency IANS, citing unnamed officials, reported that even first-time borrowers of Corporation Bank were sanctioned loans of around 1,000 crore even though the bank’s long-time policy is to restrict the exposure to 250 crore initially.

Pradeep defended his action, saying these loans to private parties are a “high-yielding" product for the bank.

He is also facing charges for wanting to select Ernst and Young India (E&Y) as a consultant to the bank, according to the Corporation Bank official.

“E&Y was awarded contracts for IT implementation, business development, wealth management, treasury operations, etc., but it was cancelled following a complaint that E&Y was unduly favoured," the Corporation Bank official, cited above, said.

E&Y didn’t offer any comment for the story.

Mint wasn’t able to independently verify the charges.

Experts said frequent corruption cases against public sector banks could dent the confidence of investors and customers in such institutions.

“Corruption is not confined to the public sector. The only thing is that these banks have an added accountability and are subjected to much higher scrutiny by outside agencies," said a former officer with the Securities Appellate Tribunal of India’s capital market regulator.