Page 32 - Banking Finance June 2019

ARTICLE

Proper appraisal of the loan proposals Work force diversion in other activities:
Banks are also involved in many other activities also
The provisions of standard bank sanction letter
like selling mutual fund, all kind of insurance
Errors in execution of the loan agreements
business, selling the government product and etc.
Deeds of hypothecation and mortgages They try to give single window solution. But in that
These were often overlooked/ compromised in process banks somehow paid the price in form of
compliance in the hurry for disbursement and this NPA menace. The workforce suddenly changed
attainment of targets for purposes of building up record from the banking focus to third party product. The
of achievements and reporting. growth and proliferation in the activities of the bank
has led to ever-increasing non-performing assets
Faulty consortium financing:
that have mounted to a huge amount during the
Loan proposal/projects having multiple banking
last decade or so.
arrangements or consortium financing not
appraised at individual bank's level with much care Demoralising/poor internal management in bank:
resulted in creating this NPA mess. In bank, for the employees, internal working
systems are like that the system worked out in such
In many of cases member banks copied and pasted
a way that 'for anything that goes wrong', some
the proposal of the leader bank resulted in
compromised credit process and also with assets offices/scan will be made accountable. It is also
possible that for involvement in any fraud,
quality and poor decision making.
prosecution will be initiated.
Wrong reporting practices:
Previously banks have been taking credit in its Bank officers take various decisions and they are
books, on basis of accrued interest income, even accountable for these decisions. If something is
for the sum of periodic interest that was not really found not appropriate they will be questioned.
paid by the borrower. This was done by raising debit When many numbers of loans are sanctioned at any
in suspense account and crediting amount point of time, some errors are unavoidable. Banks
equivalent to the periodic interest in the loan are compelled to initiate action for the omission
account of the borrower. and commission of these officers.
After objections from the auditors and income tax There are well-settled procedures for fixing
authority the banks altered strategy and started
accountability or taking disciplinary actions. These
giving extra loans to the defaulting borrowers for
disciplinary proceedings are subject to the
the purpose of making payments to the bank for
supervision and guidance of the Central Vigilance
adjustment of the over dues. In many cases the due
Commission (for middle and higher management
dates of payments were postponed and even the
cadres). Most officers are always under threat of
entire period of the loan was extended further and
vigilance action.
again resulted creating in vicious cycle of lending.
As per CVC's advice, during the same year,
Mad run of becoming bigger:
thousands of bank officers were punished. There
There was a mad race at one point of time
also could have been many cases of disciplinary
becoming bigger bank and expanding the balance
action within the bank for junior level officers.
sheet. In this race of expansion, quality with
proposal compromised. Bank officers fear their higher-ups. Even oral orders
are executed. Workforce performed in a state of
Ambitious programme for branch progress and
fear. Since financial compensation is not the main
extension of banking services led to new
attraction, they fear for dignity and protection of
recruitments, transfers, relocation and unhealthy
employment. Employee worked in the environment
competition amongst offices of the same bank, but
of like a sword over his/her head which cannot be
at the same time adequate facilities available for
training of the staff were not expanded. seen but can be felt.
32 | 2019 | JUNE | BANKING FINANCE