Who would have thought that bankers had dangerous jobs?

This is a rather funny clip from PSmith in the City by PG Wodehouse, which has given its readers a feel for what banks and bankers are all about. The charm is definitely gone and has been replaced by worry. Behind the doors of the banks, the letters of the English alphabet denote different words. While “A” can be assets and “B” can be banks, the letter “C” leads to stumbles, as the acronyms of CBI, CIC, CVC, and CID appear. Yes, the new banking world in India remains humble and the bankers continue to struggle.

The recent case involving a former president of a public sector bank (PSB) bares the trauma of being a banker. The bank loaned money to a hotel in 2007. The loan turns into a non-performing asset (ANP) in 2010. In 2013, the president of the bank retires normally. In 2014, the NPA was sold to an asset reconstruction company (ARC). It so happens that after his retirement, the president becomes a director on the board of directors of this ARC. And in 2021, a non-release warrant was issued against the ex-president (i.e. eight years after his retirement), following a case filed by the defaulter in a local court. The banker is arrested and released on bail, but faces the quadruple trauma of loss of reputation, freedom, health and money, as such cases can go on indefinitely. It’s a wake-up call for bankers. They are not safe even after retirement.

This particular case highlights the risks faced by a banker who is on the lender side or who runs the organization. We have seen several bankers in the dock following the high-profile cases of default by Nirav Modi and Vijay Mallya. Here, the alleged wrongdoing was to disburse credit. The emphasis was more on bankers than on defaulters. But no one knows what happened to the bankers who faced quadruple trauma. The present case is even more bizarre in this theater of the absurd because the defaulter was heard in a case of transfer of assets by a bank to another company, but the person pointed at is a retired banker who does not ‘was not even at the scene when the sale took place.

We have seen that those who default on loans always have their supporters; even the Reserve Bank of India had to withdraw its circular of June 2018 which required the resolution of NPAs under the Insolvency and Bankruptcy Code (IBC). Unfortunately, too many businessmen think they have the right to borrow and not repay because they are doing a service to the nation. It doesn’t matter that when they are successful, their profits go to the shareholders and not to the government. The typical argument put forward is that the economy has gone bad and therefore their business has been affected.

It is clear that such cases will be a reality in the future and it is necessary to protect the bankers.

Banks operate on commercial lines. Today, this is also the case for PSBs. The idea of ​​privatization is based on the fact that these banks become profitable and therefore good purchases for potential buyers. At the same time, PSBs need to implement various government social agenda programs to ensure alignment with broader goals. They also need to increase their pounds and make a profit. But when tokens are down and asset quality deteriorates or problems arise, as in the case of an APN sold to an ARC on terms the defaulter has deemed unacceptable, the bankers are left to their own devices – same.

What’s the exit? The government has a big role to play, with the creation of a new “bad bank” to take charge of the bad debts of the banks. In the context of the former banker’s woes, will a bank voluntarily sell its NPAs if the values ​​of transactions can be challenged in court and the bankers are at personal risk? The government needs to create a new rulebook to entice bankers, or else they might find procrastination the best solution, especially since bank chiefs have fixed terms and would prefer not to make decisions that might haunt them. years later.

First, in the same way that the government manages insurance programs for health, life and farmers, we need a new program “Prime Minister Bima’s Bank”, under which banks have to pay premiums. to insure their staff against occupational risks. The category of personnel covered could be decided by them. If a case arises, the insurer will cover the costs.

Second, any case against a banker should be handled by a specialized group of lawyers on Indian Banks Association lists, so that a retired banker facing allegations does not have to run around. Searching for a lawyer. If the person is on duty, the bank would make the legal arrangements, but post-retirement cases also need support.

Third, all such cases should go through the Ministry of Finance, where a special division should be created to ensure order. The prevailing view today is that a government cannot step in once a case is pending. Therefore, there must be a preventative mechanism in place to gain prior knowledge of such a problem before it gets to the door.

A safety net is necessary for banking reforms to be successful. The implementation of the new bad bank has generated a lot of enthusiasm, which risks being a failure if the present case is not resolved quickly. In addition, progress on India’s Insolvency and Bankruptcy Code could suffer further setbacks if bankers’ fears are not allayed. The current NPA case emboldens defaulters and, as aggrieved parties, banks are likely to become more defensive.

Madan Sabnavis is a freelance economist and author of “Hits & Misses: The Indian Banking Story”