Syndicate Bank episode should not be ‘extrapolated to tar other banks’

Reserve Bank of India Governor on Tuesday said the recent Syndicate Bank episode, where its chief was arrested for allegedly taking bribe, should not be extrapolated to tar other public sector banks.

The Central Bureau of Investigation arrested Syndicate Bank Chairman and Managing Director SK Jain and 11 others for allegedly accepting a ₹50-lakh bribe to grant credit extension to two private firms — Bhushan Steel and Prakash Industries — said to be embroiled in the coal block allocation case.

“We have to be careful that while thorough investigations are done and culprits are brought to book, it doesn’t become a witch hunt which then stops the entire credit process,” Governor Raghuram Rajan cautioned.

There are, Rajan said, a lot of highly qualified and reputable people working in public sector banks. They should not all be tarred with the same brush.

While acknowledging that the Syndicate Bank issue raises troubling questions, the RBI Governor added that there is a need to look again at the governance of the public sector banks and understand the deficiencies and improve them.

“I would emphasise that one should not extrapolate from this for the entire public sector banking system and assume that the entire problem in the public sector banking system is because of criminality rather than because of other factors,” he added.

When asked if the RBI would come out with recommendations on pricing of loans to curb quid pro quo in lending, Rajan said that this would be tantamount to taking the banker out of the (lending) equation.

One cannot take away the banker’s discretion while lending, he added.

“The whole point of banking is taking risks and using discretion in taking those risks… Where there is banker’s judgment, you have to be careful about what genuine banker judgment is and what non-genuine banker judgment is,” he added.

He added that the answer is not to make all loans uniform based on some observable characteristics, as that might lead to very bad decisions. Also, the banker would not be using his intuition on the character of the borrower.