Banks Board Chief: Can't allow sector to be risk-averse, scared

Vinod Rai says while there is a need to address the stressed assets issue with "urgency and diligence, the escapades of some industrialists need not be debated continuously”

While the Indian banking sector has seen "considerable stress" in recent years, the "cacophony of uninformed voices" could not be allowed to hurt bankers' ability to take decisions, nor should there be an "alarmist situation", Banks Board Bureau Chairman Vinod Rai said here.

"...these (problems) need not be magnified to create an alarmist situation leading to a backlash wherein banks become risk-averse whether in lending afresh or settling old cases... not all loan defaults are willful and not all lending activity, even if it is to salvage such stressed accounts, can be branded as corrupt practice or criminal misconduct. It is this precaution that we will have to take not to create a larger scare in the sector," Rai said at the National Institute of Bank Management.

Rai's comments come at a time when the banking sector's asset quality numbers have faced severe deterioration, with the Reserve Bank of India's asset quality review further weighing down on bottomlines in OctDec. The slowdown in growth, particularly in the infrastructure sector, has hit banks hard over the last few years, as projects strug- gled to gain traction and generate revenues.

Rai's words also echoed recent remarks by State Bank of India Chairman Arundhati Bhattacharya. On Monday, Bhattacharya said banks had moved to retail lending to protect themselves from criticism after loans to industrialists started becoming bad due to the state of the economy.

"If we have not yet achieved developed status, then there will have to be lenders who will come on board in order to finance Indian growth. We need to empower the banks to do it rather than rap them on the knuckles for having done it. Mistakes have been made. Mistakes have been made by all stakeholders," Bhattacharya had said.

Rai also said today that while the problems banks faced were immense, they were similar to those in the past, such as the one in the late 1990s when the Asian financial crisis posed several challenges to Indian banks, which went on to emerge stronger.

"...we cannot allow normal loan advancing activity to come to a standstill based on the experience of a few cases of mismanagement. Within the framework of the existing laws, tenacious steps have to be taken to ensure that the assets are resolved and not allowed to depreciate. It needs to be recognised that all loan defaults cannot be viewed as corporate frauds," he said.

Rai also offered assurances that it was not the intention of any agency to launch a "witch-hunt" and that effort will be made to defend "transparent and well-considered decisions taken in good faith which went awry for conditions beyond the control of the lender or the borrower".

On reforms in the banking sector, Rai said the Banks Board Bureau would work towards ensuring a level playing field for the top management in public sector banks in terms of compensation on account of the complex challenges they face and competition from foreign and other entities. -Cogencis