The arrest of SK Jain, chairman and managing director of Syndicate Bank, by the CBI on major corruption charges exposes serious deficiencies in the functioning of public sector banks (PSBs).
The top bank official is facing charges of bribe-taking to the tune of lakhs of rupees for alleged favours to private companies. There is a view that it is an isolated case and cannot be taken as a sign of widespread corruption in all public sector banks.
But last year a former chairman of Indian Bank was convicted for irregularities in the sanctioning of loans. There have been other cases also. So, it is necessary to examine whether these banks have enough safeguards against arbitrary, irregular and corrupt decisions of officials.
Both the government and the public, who have invested and deposited money in the banks, stand to lose if problems of corruption and mismanagement are not addressed effectively.
Jain was arrested for allegedly taking huge bribes for irregularly enhancing the credit limits of some companies. The issue raises questions about the method of sanctioning of loans, their pricing and conditions and the handling of non-performing assets by banks.
Many PSBs are saddled with heavy NPAs. The Jain case shows again that they are the results of not just economic slowdown which has hurt the business of companies or genuine misjudgement of officials but deliberate action on the part of bank officials too.
The processes lack transparency and the topmost official enjoys discretionary powers without room for checks and controls. Bad governance and mismanagement are at the root of these and many other ills that frequently come to the surface.
The CMD and directors are political appointees and their selection is not based on professional criteria. Small time politicians and people who have no connections to banking have found their place on bank boards.
There are major discrepancies in remuneration, tenure and other conditions of service between the top officials of PSBs and other banks. Procedures and internal systems to ensure transparency and accountability are weak and the top officials are beholden to and dictated to by politicians.
Unless the best norms of professional management are followed in their working, PSBs will not be able to serve public interest. A committee appointed by the Reserve Bank, headed by P J Nayak, had made some valuable recommendations, including reduction of government stake, in this direction. But they are unlikely to be accepted and implemented for obvious reasons.
