Firms fret over lending freeze amid PNB fraud

Industry bodies call for better control, cutting government stake in PSBs

Lending to corporates should not be choked as a fallout of the Rs 11,400-crore fraud at Punjab National Bank (PNB) specially at a time when credit growth is about to recover and the economy set to grow at a higher pace, India Inc has cautioned.

The Indian industry called for better control systems to check financial frauds and also suggested gradual reduction in government holding in public sector banks (PSBs).

The Confederation of Indian Industry (CII) said government should lower its stake in PSBs to 33 per cent gradually and adopt a twin strategy for tackling financial frauds, including better monitoring and supervision of banks and spread of best corporate governance standards.

"The government, regulators and industry must act fast to address systemic risks in the financial sector. The three key solutions for the banking sector are better management and operational efficiencies, use of technology such as blockchain and big data analytics, and lowering government shareholding in public sector banks," CII President Shobana Kamineni said in a statement.

Assocham cautioned against allowing the alleged fraud in the PNB to halt the entire system of corporate lending as demoralisation would set in among the top functionaries and employees of the state-owned banks.

It is something the country can ill-afford at a time when the credit growth was about to recover and economy was set to grow at a higher pace, Assocham said.

The CII president said financial malfeasance perpetrated by a collusion of unethical business entities and corrupt officials should not lead to a situation where funds to industry get choked.

"It is time for government to consider consolidation of PSBs and develop a few strong banks adhering to best standards in governance, accountability and transparency. Currently, shareholdings of government have been rising with bank recapitalisation attempts, and these should be brought down to 52 per cent at the earliest as intended by the government," she said.

A roadmap could be announced for bringing the government stake to 33 per cent in three to four years, CII said.

Assocham Secretary General D S Rawat said while long term solutions like privatisation of banks can be sought, the need of the hour is to rally around honest bank officers and honest business entities which have built trust on each other.

"Let one or a few black sheep not derail our financial system, which is resilient enough to withstand this kind of shocks, though ideally such jolts are better avoided and averted through systemic reforms," Rawat said.

Citing January export data that showed a deceleration in growth even as the global economy is on uptick, Assocham said the prick up in the domestic economy would require higher imports.

“Thus, both imports and exports are key to our economy and we have come a long way in scaling up the inter-face between the government agencies and the trade over the years. It is time to correct the systems which had allowed the misuse and move on with the task of achieving higher economic growth," Assocham said.

The industry said there is a need to strengthen internal systems of enterprises and adherence to regulatory norms in letter and spirit.