The recent arrest and 14-day judicial remand of Pratip Chaudhuri, former Chairman of State Bank of India, on criminal charges pertaining to a loan recovery decision has predictably invited mixed reactions with bankers especially springing to his defence.
The leit motif of the criticism is it could not have come at a worse time for India’s credit ecosystem when the government is pulling out all stops to get bankers to shed their risk aversion and resume lending. Despite economic activity improving, credit flow to industry has grown at just 2.5 per cent year-on-year in September compared to last year is their burden of song. That the Finance Ministry had as recently as last week come up with a new Staff Accountability Framework to protect bankers from unnecessary scrutiny on bona-fide decisions relating to non-performing assets (NPAs) up to Rs 50 crore is cited as the move sending a contradictory signal.
It is true that bankers should not be made to look over their shoulders each time they lend or initiate best recovery moves. The proverbial Damocles’ sword indeed lulls bankers into inactivity and makes them invest in the safety of gilts instead of lending which is what banking is substantially about. That said, it must be pointed out that bankers are the quintessential Caesar’s wives whose conduct should be beyond reproach. Any whiff of scandal or hobnobbing with the borrower or a Johnny-come-lately rescuer knight in the shining armor can come to haunt them. Indeed that is their lot if a banker does anything arousing suspicion and lending credence to the charge of wrongdoing albeit in retrospect.
Garh Rajwada case
The facts of the case are Garh Rajwada; a hotel project was financed by SBI in 2007 to the tune of Rs 24 crore. The loan remained inoperative for over three years becoming an NPA in June 2010. After recovery efforts failed as usual, the bank sold the property to Alchemist ARC in March 2014 for Rs 25 crore which in turn sold the property to an NBFC under IBC proceedings in December 2017.
Pratip Chaudhuri, having retired as SBI Chairman on September 30, 2013, joined the Alchemist ARC Board in October 2014 fuelling suspicion of collusive fraud albeit in hindsight---property valued at Rs 200 crore was sold to the Alchemy ARC for a pittance i.e. Rs 25 crore and that the NBFC is nothing but the handmaiden of the two---Alchemy ARC and Chaudhuri. The hotel not only owed the principal, but also the piled up interest as invariably is the case.
One may say that the allegation of collusive fraud is just a conjecture with the benefit of hindsight. While the courts will decide his fate---convict or absolve---the fact remains that Chaudhuri joining the Alchemy Board has made things a little too obvious.
The glib, blasé answer---more in the vain spirit of whataboutery---of the apologists is, So what? Don’t lenders invariably take heavy haircuts under IBC proceedings often in the region of 90 percent? That hardly can hold back the investigative agencies, can it?
In this context, the mandatory three-year cooling off period for government servants holding responsible position from post-retirement private sector jobs--to guard against possible post-retirement sinecure or more blatant abuse of power, as is suspected in Chaudhuri’s case is relevant.
While the CVC has bemoaned the lack of uniform and strict enforcement of this salutary rule, there is no reason why it cannot be extended to PSB employees too, though people at the end of the day are clever enough to circumvent all salutary rules.
While the matter is sub-judice, Chaudhury seems to have shot himself in the foot by joining Alchemy ARC board. Sleuths cannot be expected to ignore unfolding events.
(The author is a senior columnist and tweets @smurlidharan)
