Who is being protected?

The letters of undertaking, letters of credit and guarantees are credit facilities extended by banks that fall under the head of Non-Fund Based (NFB) limits. An NFB limit is like a rock on a slope possessing potential energy. The moment it rolls down that potential energy translates to kinetic energy. With NFB limits, the moment the goods arrive and the document “crystallises” it automatically becomes a fund-based liability and the NFB issuing bank is under obligation to retire the documents. That is why before an NFB limit is sanctioned it is necessary to have the fundbased facility in place. If the import is of raw material then sufficient drawing power in working capital limits must be created and a lien marked. Or a fresh limit sanctioned solely for the purpose of import. In case of machinery, the necessary term facilities must be sanctioned and kept ready. This is the ABC of NFBs.

The classic case of an NFB turning rogue and the manner in which the bank retrieved the situation is enshrined in the case study of the late 1970s, of Chitram and Co, an SBI borrower of Chennai circle. The facility was for the huge gantry crane in Cochin Shipyard that dominates the skyline. The Punjab National Bank case is an event of wilful fraud, zero supervision and control processes and system lacunae that were perhaps deliberately kept open. But why are only low-level officers being questioned when a government nominee director of Allahabad Bank has raised the involvement of even the banking secretary in the finance ministry? Who is being protected? The officers’ associations of banks must raise the issue.

T R Ramaswami Mumbai