Clip discretionary powers of PSB chiefs to curb corruption, says CBI--ET
NEW DELHI: After years of struggle to get autonomy in decision making, chiefs of state-run banks may lose chunk of their powers, as mounting non-performing loans bring their lending practices into sharp focus.
The Central Bureau of Investigation (CBI), has suggested that the discretionary powers of chairman and executive directors should be revoked in order to curb corruption.
In a report shared with the finance ministry recently, the CBI has pointed out that large borrowers can influence the top management of the banks in order to ease the loan-sanctioning process, a government official told ET. State-run banks, however, have opposed the proposal.
The discretionary powers vested in the chairman include waving or reducing charges, offering some discount on interest rates and other commercial decisions, which allows outside influence in credit disbursement, as evident in the Canara BankBSE -0.12 % case.
Former railway minister P K Bansal's kin Sunil Gupta, a shareholder director in Canara Bank, had allegedly helped one of the companies owned by the minister's son secure loans from the same bank.
A CBI court recently sentenced a former chairman of Indian Bank to one year rigorous imprisonment by in a cheating case causing loss to the bank.
The banking sector body, Indian Banks Association, has opposed the move citing that such measures will impact banks' competitiveness. "Discretionary power is a part of the bank's financial and managerial autonomy. The IBA has opposed any such measure," said an IBA official, requesting anonymity.
A head of a state-run bank also expressed disappointment, saying they were being reduced to rubber stamps as most of the creditsanctioning process has already been delinked from discretionary powers - loans are now sanctioned by the credit committees at corporate and regional level.
"What good a chairman is if he cannot take any minor decisions that too while informing the committee which has already vetted the proposal," he asked.
Former financial services secretary, DK Mittal, under whom the proposal for forming credit sanctioning committees was firmed, said that to delink the discretionary powers from the top brass will be a retrograde step.
"State-run banks are already under pressure. This is a commercial activity and some decisions need to be taken by the executive. If implemented the move can lead to shift of business from PSBs to private sector," he said.
The Central Bureau of Investigation (CBI), has suggested that the discretionary powers of chairman and executive directors should be revoked in order to curb corruption.
In a report shared with the finance ministry recently, the CBI has pointed out that large borrowers can influence the top management of the banks in order to ease the loan-sanctioning process, a government official told ET. State-run banks, however, have opposed the proposal.
The discretionary powers vested in the chairman include waving or reducing charges, offering some discount on interest rates and other commercial decisions, which allows outside influence in credit disbursement, as evident in the Canara BankBSE -0.12 % case.
Former railway minister P K Bansal's kin Sunil Gupta, a shareholder director in Canara Bank, had allegedly helped one of the companies owned by the minister's son secure loans from the same bank.
A CBI court recently sentenced a former chairman of Indian Bank to one year rigorous imprisonment by in a cheating case causing loss to the bank.
The banking sector body, Indian Banks Association, has opposed the move citing that such measures will impact banks' competitiveness. "Discretionary power is a part of the bank's financial and managerial autonomy. The IBA has opposed any such measure," said an IBA official, requesting anonymity.
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"What good a chairman is if he cannot take any minor decisions that too while informing the committee which has already vetted the proposal," he asked.
Former financial services secretary, DK Mittal, under whom the proposal for forming credit sanctioning committees was firmed, said that to delink the discretionary powers from the top brass will be a retrograde step.
"State-run banks are already under pressure. This is a commercial activity and some decisions need to be taken by the executive. If implemented the move can lead to shift of business from PSBs to private sector," he said.
Indian lenders take 4000 crore hit on Mumbai based jeweller Winsome -ET
MUMBAI: Indian banks have grudgingly forked out well over 4,000 crore to international bullion banks on behalf of Winsome, a Mumbai-based jeweller, but are unsure whether the money can ever be salvaged.
What makes their job particularly difficult is the absence of adequate securities against exposures to Winsome. This is because last year, the banks had released corporate guarantees and mortgages that the Winsome group had given to obtain credit facilities from the local lenders.
While the rationale behind freeing the securities remains unclear, it could have been done to enable associates and subsidiaries of Winsome Diamonds & Jewellery -- a listed company formerly called Su-raj -- to raise funds.
Fifteen Indian banks, including PNB, Union Bank of India, Canara BankBSE -0.12 % and Central Bank, had provided standby letters of credit facilities (SBLC) in favour of global bullion banks such as Standard of South Africa and Standard Chartered, London. As per the terms of the SBLC, the Indian lenders were required to pay the bullion banks if Winsome failed to pay. The foreign banks invoked all the SBLCs soon after Winsome defaulted following which the liability fell on Indian banks.
Even though some of the Indian banks initially resisted paying the bullion banks (which had supplied gold to Winsome), they were left with no choice thanks to the "accelerated payment" provision in the gold loan agreement between Winsome and the bullion banks.
However, they were left with no choice thanks to the "accelerated payment" provision in the gold loan agreement between Winsome and bullion banks. This provision enabled the bullion banks to invoke LCs well before due dates if there were signs that Winsome would default in future. Indian banks may have changed their stance after RBI pointed out that their non-payment could be construed as sovereign default, say bankers familiar with the case.
Emails and text messages to KR Kamath, Chairman of Punjab National Bank, the leader of the 15-member consortium, went unanswered. However, a senior official of the state-owned bank said that personal guarantee furnished by Su-raj promoter Jatin Mehta is still with banks. But lenders, whose total exposure to Winsome group exceeds 6,000 crore, may be unable to avert a hit by invoking Mehta's personal guarantee.
Mehta, who is related to the Adanis -- a well known business family - stepped down as Winsome chairman last year and mostly operates out of Dubai and Singapore.
Meanwhile, banks have been recently told that Winsome's inability to repay is due to huge derivative losses suffered by the jeweller's overseas clients who are said to be in financial difficulties.
Around eight bank officials visited Dubai to carry out on-site inspection of these counterparties of the Winsome group. A meeting also took place between the lenders, Jatin Mehta and the foreign counterparties at Sharjah. While representatives of these counterparties admitted at the meeting that they had defaulted to Winsome following derivative losses, banks are yet to verify these claims and have no detailed knowledge about these Middle-East companies.
Winsome has also proposed a restructuring of loans so that the dues can be cleared over 8 to 10 years. But banks, who are yet to spell out their stand, may ask the counterparties (Winsome's Dubai customers) to make a down payment of at least 25% of the outstanding dues to demonstrate their commitment. Banks also want Mehta to open an escrow account so that they are able to get hold of funds remitted to Winsome companies by overseas clients.
The Indian banking consortium is conducting a forensic audit on Winsome. Banks have decided that they will consider restructuring the loans only if the audit establishes that additional funding is viable and funds were not diverted, said a person familiar with the negotiations.
A core committee of lenders has been formed to review the accounts. It includes PNB, Union Bank of India, Central Bank of India and Canara Bank.
What makes their job particularly difficult is the absence of adequate securities against exposures to Winsome. This is because last year, the banks had released corporate guarantees and mortgages that the Winsome group had given to obtain credit facilities from the local lenders.
While the rationale behind freeing the securities remains unclear, it could have been done to enable associates and subsidiaries of Winsome Diamonds & Jewellery -- a listed company formerly called Su-raj -- to raise funds.
Fifteen Indian banks, including PNB, Union Bank of India, Canara BankBSE -0.12 % and Central Bank, had provided standby letters of credit facilities (SBLC) in favour of global bullion banks such as Standard of South Africa and Standard Chartered, London. As per the terms of the SBLC, the Indian lenders were required to pay the bullion banks if Winsome failed to pay. The foreign banks invoked all the SBLCs soon after Winsome defaulted following which the liability fell on Indian banks.
Even though some of the Indian banks initially resisted paying the bullion banks (which had supplied gold to Winsome), they were left with no choice thanks to the "accelerated payment" provision in the gold loan agreement between Winsome and the bullion banks.
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However, they were left with no choice thanks to the "accelerated payment" provision in the gold loan agreement between Winsome and bullion banks. This provision enabled the bullion banks to invoke LCs well before due dates if there were signs that Winsome would default in future. Indian banks may have changed their stance after RBI pointed out that their non-payment could be construed as sovereign default, say bankers familiar with the case.
Emails and text messages to KR Kamath, Chairman of Punjab National Bank, the leader of the 15-member consortium, went unanswered. However, a senior official of the state-owned bank said that personal guarantee furnished by Su-raj promoter Jatin Mehta is still with banks. But lenders, whose total exposure to Winsome group exceeds 6,000 crore, may be unable to avert a hit by invoking Mehta's personal guarantee.
Mehta, who is related to the Adanis -- a well known business family - stepped down as Winsome chairman last year and mostly operates out of Dubai and Singapore.
Meanwhile, banks have been recently told that Winsome's inability to repay is due to huge derivative losses suffered by the jeweller's overseas clients who are said to be in financial difficulties.
Around eight bank officials visited Dubai to carry out on-site inspection of these counterparties of the Winsome group. A meeting also took place between the lenders, Jatin Mehta and the foreign counterparties at Sharjah. While representatives of these counterparties admitted at the meeting that they had defaulted to Winsome following derivative losses, banks are yet to verify these claims and have no detailed knowledge about these Middle-East companies.
Winsome has also proposed a restructuring of loans so that the dues can be cleared over 8 to 10 years. But banks, who are yet to spell out their stand, may ask the counterparties (Winsome's Dubai customers) to make a down payment of at least 25% of the outstanding dues to demonstrate their commitment. Banks also want Mehta to open an escrow account so that they are able to get hold of funds remitted to Winsome companies by overseas clients.
The Indian banking consortium is conducting a forensic audit on Winsome. Banks have decided that they will consider restructuring the loans only if the audit establishes that additional funding is viable and funds were not diverted, said a person familiar with the negotiations.
A core committee of lenders has been formed to review the accounts. It includes PNB, Union Bank of India, Central Bank of India and Canara Bank.
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