Moneycontrol PRO
UPCOMING EVENT:Know how Global Investing can be spread beyond the US markets by joining an engaging webinar on November 30, 11:30 a.m.
you are here: HomeNewsBusiness

Banking Central | Should political parties meddle in a banker’s job?

If banks need to operate professionally, politicians have to stay away from loan 'mediation', 'facilitation' or whatever else they call it

September 20, 2021 / 01:05 PM IST
Representative image

Representative image

Bankers, especially those with public sector banks (PSBs), in “off-the-record” chats often talk about political interference in their daily work. The problem is more acute in PSBs as they are directly owned by the government.

Now and then, informal missives are passed by the top management to junior officers, with the buck inevitably stopping with a branch-level officer. Talking to several such officers, I found that these informal orders put immense pressure on managers who fear for their careers and also create a fear psychosis among bankers.

Now, imagine a scenario where politicians double up as “loan arrangers”. Last year, Moneycontrol wrote about the Tamil Nadu unit of the Bharatiya Janata Party (BJP) launching a portal to help applicants secure a bank loan under various government schemes, probably the first time that a political outfit had openly intervened in the lending activity of financial institutions.

The BJP unit published details of the helpline on its website “Are you looking for a bank loan to start your enterprise or pursue a business? TN BJP has stepped in to help meritorious persons of Tamil Nadu get a bank loan directly, without paying intermediaries or brokers,” the website said.

The promise came in the backdrop of the poor response to the Rs 3-lakh-crore MSME loan scheme launched by the Centre. The platform got a good response. At the last count, the portal had received 41,980 applications, of which 15,882 were eligible and 5168 applicants got the loan.


Hands off the tiller, please

Regardless of the intent, the involvement of political parties in loan disbursals can have serious implications for banks. How can a bank officer at the branch level refuse when a powerful local politician walks into the office with a “loan request”? Such interventions often put bankers in a tight spot.

banking central

Political intervention and micromanagement of banks have long been cited as a reason for the bad-loan mess in the banking sector. About 60 percent of India’s banking system, by assets, is controlled by government banks.

There was another incident — Banking Central wrote about it in detail in the previous week— where a diktat from the top forced a leading state-run bank to take punitive action against a senior officer for refusing to prosecute three probationary officers (POs) in a loan fraud case. The POs, he reasoned had acted under pressure from seniors. Here again, the order came from “the top”, a euphemism for bureaucratic interference.

Political intervention is also to be blamed for the collapse of several cooperative banks. This was evident most recently in the Karuvannur Cooperative Bank scam. Local politicians use such institutions for personal gains and benami transactions.

Though the Reserve Bank of India has put in more checks to prevent such cases, they are still rampant. The incidents cited by your writer are not even the tip of the proverbial iceberg.

The government may be doing its bit to clean the books of banks by coming up with a bad bank but it can only go that far. It can’t prevent non-performing assets from piling up in the future. A part of the problem can be addressed if the political class keeps its hands off banks.

For banks to operate professionally, politicians need to stay away from loan mediation or “facilitation” or whatever name they give it.

(Banking Central is a weekly column that keeps a close watch and connects the dots about the sector's most important events for readers.)
Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: Sep 20, 2021 01:04 pm

stay updated

Get Daily News on your Browser
ISO 27001 - BSI Assurance Mark