Home / Industry / Banking /  Rajiv Takru says bankers reckless, casual as bad loans rise

Mumbai: Bankers are being “reckless" and “casual" towards lending, Rajiv Takru, secretary, department of financial services, said on Wednesday, blaming them for increasing bad loans.

The government may increase the maximum penalty possible on banks for breaking rules to 500 crore from the current 1 crore, Takru said, in a reference to a Cobrapost expose on how bank officials bent rules for customers.

“We are in a sorry state of affairs. There has been a huge disregard for the fundamentals of the financial system by respectable people. While doing due diligence for loans of hundreds or thousands of crore, the least we expect you is to do due diligence of the company’s balance sheet. But there is a percentage of people who have a casual approach to non-negotiable things (in banking) like financial data," Takru said, much to the discomfort of the bankers present in the audience at the conference where he was speaking.

Takru provided an example of a company against which a police complaint was filed for cooking up balance sheets to get loans.

“The least the bank could have done is check with the registrar of companies, but even that was not done," he said, without naming either the bank or the company.

Gross non-performing assets on the books of banks have risen from an average of 1.9% a few years ago to 3.9% at the end of December, Takru said, adding that it’s become “routine" for bank loans to be not entirely covered by the surety or security offered by borrowers.

By the end of March, gross bad loans had soared to 1.79 trillion, from 1.51 trillion a year ago.

In an extempore address, Takru said the lack of due diligence and increasing number of corporate debt restructuring (CDR) plans are the main reasons for the rise.

“CDR is a very fashionable term these days. I have said time and again and now will say it in public, CDR should be given to only companies that are bona fide and where it appears that the unit can be salvaged," he said. “CDR cannot be given to pad up bank balance sheets or to delay the problem when a banker’s tenure is getting over."

CDR is a mechanism under which borrowers are either given more time to repay or lending rates are reduced for companies in stress.

Takru clarified that he was not against CDR when companies genuinely need “handholding". “But when there is a outright malafide intent, you have to come down with a whole heavy hand, you have to get nasty," he said. “I want this to be understood by both banks as well as borrowers."

Referring to the Cobrapost expose, in which employees of 27 banks and insurance companies were video-tapped advising customers on how to evade taxes, Takru said it should make bankers and the government “sit up and take notice".

“There is no point in saying these are minor aberrations here and there. You have very little scope for fooling around with the basic banking practice. I am extremely conservative and have zero tolerance for anybody who steps out of line," he said. “My advice to banks and insurance companies is, ‘get your systems in order.’"

“This (incident) is the strongest argument for raising (maximum) penalties on banks. I would personally make it 500 crore so that it hurts you and you care about what your subordinates are up to," Takru said.

Takru’s comments come a day after Reserve Bank of India governor D. Subbarao described the banking penalty cap in India at 1 crore as “peanuts".

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