Money & Banking
A letter to the RBI Governor on indiscriminate lending by PSBs

With Mr. Subhash Sawant and others questioning the prevailing unfettered, unquestioned disbursing of public funds by Public Sector Banks at "Will" - theirs' or their political masters', a new chapter has begun in the public space


Social worker Abhay Desai, has been working with former union leader Subhash Sawant, on the issue of the unfettered and unquestioned loan sanction to borrowers, especially those with connections. Desai wrote a letter to the RBI governor about how citizenry and the arms of government and regulators should work together to stem the tide of bad loans and crony capitalism. The text of the letter is as below. Do share and spread the message:



The Governor


Reserve Bank of India



Dear Dr Raghuram Rajan

Jana Mana, Jana Dhana


Thank you very much for bringing the issues of "funds-of-the-people" disbursed as they are, by the "custodian bankers" to "the-center-of-the-stage" of public debate. Across all the media platforms English and vernacular, terms such as NPA and Crony Capitalism are beginning to be understood and make sense to a commoner like me as well. This very knowledge that financial literacy among the populace is spreading fast has stirred a few in the PS Banks to bring to public notice & debate the very existence of this malice and thus seek greater participation and support of and from citizens.


Many among us thought that the bankers were doing their job with diligence. This was the prevailing perception harboured by many like me. This perception took a conscious shift with the surfacing of the curious case of bank employees raising their voice on the streets of Mumbai as "principal custodians" of not only "peoples' funds" but "their faith" as well. As the days passed, an innocent event carrying on its shoulders serious cause - the one mentioned above, turned the management of Central Bank of India hostile towards the organiser/s of the Morcha. In the beginning the Morcha seemed Prima facie another episode of "cat and mouse" game between the two players. As the details emerged, the fine print revealed that the Bank in question did not appreciate "one among" them going "public" with issue of good governance and questioned their practices. It questioned their very doctrine of prudence as practiced by them - The Bankers.


With Mr Subhash Sawant leading the pack and questioning the prevailing wisdom among the Bankers - unfettered, unquestioned right of disbursing public funds by the PS Banks at "Will" - theirs' or their political masters', a new chapter has begun in public space. By initiating a process that may deny pension benefits to him, the Bank lost an opportunity to make him & them a partner in the ongoing campaign of "Swatchch Banks". What comes to mind is that CVC had in September formed a four-member advisory board, headed by former Vigilance Commissioner Ranjana Kumar, to assist it and CBI in examining matters related to PS Bank' commercial and financial frauds.


Last year, CVC had imposed punishment including administrative action in 153 cases involving officials of Bank of Baroda, 127 cases involving SBI, 110 Syndicate Bank, 80 Punjab National Bank, 77 of Union Bank of India, and 73 cases involving Vijaya Bank. A total of 7,365 complaints of alleged corruption were received against Banks' officials by the CVC last year. In September, the Commission had advised major penalty against 53 officials of banks for their alleged involvement in corruption, according to the CVC's monthly performance report. The CVC has decided to expand its pool of officers drawn from PS Banks to help it probe corruption complaints in the public banking sector.


The CVC has written to several PS Banks - State Bank of India, Bank of Baroda, Punjab National Bank, Central Bank of India, Canara Bank and Oriental Bank of Commerce, among others, asking them to send a list of interested officers of Deputy General Manager (DGM) level who can serve as advisers in the commission. I will appreciate if the Governor of RBI can engage the CVC and urge it to include public spirited ex-employees as well of PS Banks irrespective of their position during the tenure - management or staff, to be included as advisors.


One can depoliticise the process by mandating that every such advisor not be a member of an alliance, affiliation or a union at the time of consultation or thereafter. One should not have any reservation about such an arrangement because one has to look up to the judiciary and politics to emulate. Members of the Bar are encouraged and invited to be Judges of the High Courts. A practising lawyer becomes an amicus curiae at the urging of the Honourable Justices. Even a politician becomes The President of The Republic of India - contesting candidates retire from active politics the day campaigning ends. If there is an iota of conflict of interest one just recuses self. Let us build this robust mechanism. I urge you to express views of your office on public fora and/or issue an advisory on the issue of participation of employees (Ex or serving) of PS Banks in their informal or formal capacity in a transparent Banking ecosystem.


This will be a revolutionary step. Your office is constitutionally empowered to take the lead. Let there be room for many actors to protect the interests of depositors of Banks in India. Let there be a vigilant mechanism in place to protect "The Jana Dhana". Let us create a conducive environment that fosters growth of concerned citizens in numbers, quality of thought and commitment to the cause, so they come forward, take the lead in good governance. Let us nip in the bud the tendencies that breed practices that protects an exclusive club where those not heard become vigilantes as a consequence of not being heard.


An episode is still fresh in the mind when interviews were postponed by the Central Bank of India under protest by political parties recognised by CEC and the process was halted sheepishly in Mumbai alone and the issue in question referred to IBPS. It is very interesting to note that Mr.


Subhash Sawant and his team did not exert such pressure when they are in a position to do so as well and very well - laudable for an employees' union where no political capital was extracted by the leadership when their very personal interests were cornered.


We expect your office to take initiative so that the whispers that have now become articulated opinions find a platform and these find their rightful place in civil society to be discussed and debated. We tolerate the promoters turned wilful defaulters. We accept financials of their businesses without question. We, as a nation should not see, tolerate and allow a system that accepts the bottom line of the passbooks of our citizens with only ciphers when the Banks go under.


When crises arise we see the Banks laughing all their way to the Finance Ministry with the confidence that they will be recapitalised - Basel or no Basel. Just before sending this mail came news flash that RBI has reworded the definition of "Non-Cooperative Borrowers". These measures reassure us that Yaksh & Yakshini continue to inspire The Institution to be the Mana of our Republic that guards the Dhana of the Jana.

Thank you for your time, Governor.



December 23, 2014


Abhay Desai




Bhardwaj Satish

3 years ago

Spending rather wasting public money fun for RBI, De La Rue defective substandard currency paper stationary and machines cost 8000 Crore INR, created security lapses more than Abdul Kareem Telgi; what prompt RBI not to threw open this case to CBI? Why none RBI small or biggie fixed for corruption lapses? Public money inconvenience who cares?

Bhardwaj Satish

3 years ago

Spending rather wasting public money fun for RBI, De La Rue defective substandard currency paper stationary and machines cost 8000 Crore INR, created security lapses more than Abdul Kareem Telgi; what prompt RBI not to threw open this case to CBI? Why none RBI small or biggie fixed for corruption lapses? Public money inconvenience who cares?

Raghavan Thundiyil

3 years ago

Finance minister wants interest rates to be reduced. But what about 5lakh crores of NPAs which the super rich of India refuses to pay back. This amount can finance several Govt schemes (which the govt is now planning to do away with- the schemes which really benefits deserving under privileged). Even disclosing these NPAs' names are taboo, but FM wants more to be pumped to willful defaulters, so that it can come back for next election campaign.
Now that the money that has gone into the campaign has started talking in the words of FM, expect more to follow.
The starting point for an action against these NPAs would be a campaign to publish the names of defaulters, which will throw up names of politicians, their benamis & the finaciers of all political parties.



In Reply to Raghavan Thundiyil 3 years ago

When the Swach PM can induct an NPA Industrialist - Sujana Industries as a Minister, do you think our FM who is all action like Jet Li will apply his mind to take efforts to recover the NPAs. You and I are there to bear the losses created by corrupt CMDs like Jain of Syndicate Bank. The FM is least worried as he is already worth 110 Crores officially .


3 years ago

Added to this our Finance Minister has started baiting the RBI Governor just like his predecessor. He needs some excuse for Nonperformance. Anyway, Bank chiefs bend backwards to please the political bosses irrespective of the party color. When the PM can induct a defaulter as a Minister, one shudders to think of the position of our Banks which are being manned by sheer incompetency.

manhar kothari

3 years ago

Thought provoking letter.
Majority of common people believe that few business houses in collaboration of politicians and corrupt bank officials manipulate system to siphon public money.
This issue deserve serious attention of RBI governor and people seating in government and who believes in good governance.

Retention of Standard Assets as Standard: New Framework confuses all

Provisions of the revised framework and the Guidelines on Restructuring of Advances by NBFCs, have left ambiguity in the provisioning of assets that may be considered standard, after change in repayment schedule and/or restructuring


Non-Banking Financial Companies (NBFC) have been an important segment of the financial services sector, progressively contributing to the financial inclusion agenda and bringing about credit growth. The ever growing significance of NBFCs also demanded revision in the regulatory framework. The Usha Thorat Committee’s report on growing significance of NBFCs and the recommendations to streamline the regulations applicable to NBFCs with that of banks was largely adopted in the revised regulatory framework (“Regulations”) that RBI released on 10th November, 2014.

While the fine prints of the revised framework are yet to be released, what has intrigued the NBFC sector already is a small insertion in Para 8.13 of the revised framework. The Para reads as –

8.13 For the existing loans, a one-time adjustment of the repayment schedule, which shall not amount to restructuring will, however, be permitted.

The sluggish economic environment has posed several challenges to doing business ability of the corporate sector and has also impacted financial institutions with credit recoveries remaining extremely strained.

Before the revised framework was released, RBI had issued Guidelines on Restructuring of Advances by NBFCs (“Guidelines”) which provided breather in some cases on restructuring of standard assets by allowing the NBFCs to retain them as standard in their books even after restructuring, subject to the compliance of the provisions relating to special regulatory treatment.

While the revised framework does not have any reference to the restructuring guidelines, one may have to look at the restructuring guidelines issued in January, 2014.

What creates ambiguity is that, Para 8.13 of the Regulations says, one-time adjustment of the repayment schedule, which does not tantamount to restructuring, shall be permitted, which means, if the repayment schedule of a standard asset is adjusted for one time, subject to the fact that this adjustment is not amounting to restructuring, standard asset will remain standard and normal provisioning will have to be done at the rate of 0.25%.

On the other hand, the Guidelines allow the NBFCs to retain standard assets as standard even after restructuring, subject to the conditions mentioned in Clause 7.2.1 of the Guidelines. The text of the law has been laid down below:

7.2.1 Incentive for quick implementation of the restructuring package

As stated in para 4.1.2, during the pendency of the application for restructuring of the advance with the NBFC, the usual asset classification norms would continue to apply. The process of reclassification of an asset should not stop merely because the application is under consideration. However, as an incentive for quick implementation of the package, if the approved package is implemented by the NBFC as per the following time schedule, the asset classification status may be restored to the position which existed when the reference was made to the CDR Cell in respect of cases covered under the CDR Mechanism or when the restructuring application was received by the NBFC in non-CDR cases:

(i) Within 120 days from the date of approval under the CDR Mechanism.

(ii) Within 120 days from the date of receipt of application by the NBFC in cases other than those restructured under the CDR Mechanism.

Thus, if the approved package of restructuring is implemented within 120 days from the date of approval or from the date of receipt of application, as the case may be, an NBFC will be allowed to retain a standard asset in its books as a restructured standard asset.


However, such assets will be subject to a higher provisioning at the rate of 5%, pursuant to the provisions of Clause 4.4.1, and provision for diminution in fair value, pursuant to the provisions of Clause 4.4.2.

If the NBFCs intend to choose the provisions of Clause 8.13 of the Regulations over the Guidelines, following will be its limitations and benefits –

• If the NBFCs choose Clause 8.13 of the Regulations over the Guidelines, the standard asset will be retained as standard; it will be able to escape the dual provisioning requirements under the Guidelines.

• It will be difficult to adjust the repayment schedule without restructuring the asset.


Adjustment of repayment schedule is nothing else than re-scheduling and in the Guidelines, the words “Reschedule”, “Restructure” and “Renewal” have been used as de-facto alternatives. Thus, in most of cases, adjustment of repayment schedule will tantamount to restructuring and thus, will fall under the purview of the Guidelines.

However, there is an instance mentioned in the Guidelines, which will not tantamount to restructuring. Referring Clauses 3.3 (v) and 3.4 (iv), mere extension of DCCO for a period less than 2 years and 1 year in cases of infrastructure project loans and non-infrastructure project loans, respectively, will not be considered as restructuring.

As on date, the Regulations have not been notified. Thus, unless the Regulations are getting notified on or before 31st December, 2014, there is no question of availing the benefit of Para 8.13 of the Regulations and NBFCs will have to follow the Guidelines for retaining the assets as standard in their books. Thus, any adjustment in the repayment schedule will be subject to a higher provisioning of 5% and provision diminution in fair value.

However, even if the Regulations get notified on or before 31st December, 2014, benefits under Clause 8.13 will not be available without its set of troubles as mentioned above.


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