In a move aimed at lifting the morale of public sector banks, the Finance Ministry has issued broad guidelines on staff accountability for NPA accounts up to ₹50 crore.

Banks have been advised to revise their staff accountability policies based on the new guidelines and get their respective boards to approve the new procedures.

The move, which comes at a time when there is a need to push credit growth in the banking system, is expected to tackle the fear among bankers to take lending decisions, given that the bank NPAs are a politically volatile issue.

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Track record of officials

Under the new guidelines, PSBs have been tasked to complete the staff accountability exercise within six months from the date of classification of the account as NPA.

Further, depending on the business size of the banks, threshold limits have been advised for scrutiny of the accountability by the Chief Vigilance Officer (CVO). Past track record of the officials in appraisal/sanction/monitoring will also be given due weightage.

Previously, the staff accountability exercise was carried out in respect of all accounts that turn into NPAs. Now banks have been allowed to, with the approval of their board, decide on a threshold of ₹10 lakh or ₹20 lakh depending on their business size for the need to examine the staff accountability aspect.

The latest move could help restart credit growth and encourage bankers to start taking decisions now that there is an assurance that all bonafide business decisions will be protected, said a banking industry official. Credit growth in the banking system has averaged 6-8 per cent in the last few years and has been affected even more due to the pandemic in the last 18 months.

Policy makers need to introspect as to why credit growth is lower than the nominal GDP growth of 8-9 per cent clocked in recent years (before impact of pandemic), say economy watchers.

Restructuring window

Credit growth in the economy and banking system almost came to a grinding halt after the RBI removed the window of restructuring (which allegedly enabled evergreening of loans and hid the true picture of the asset quality) and the quantum of NPAs in the system ballooned to ₹8-9-lakh crore.

Allegations of “phone banking” too brought down the morale and confidence of bankers.

A chunk of the NPAs figured in the accounts up to ₹50 crore and it is here that bankers have, in the last few years, stopped taking decisions, lest they be questioned in the future, sources in the banking industry said. Also, different PSBs are following different procedures for conducting staff accountability exercises.

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