IDBI Bank’s Bad Loan Mystery

Sucheta Dalal 16 March 2016

Can the Bank employees shirk the responsibility of bad loans

Ten years ago, IDBI Bank was allowed to clean up its books by transferring bad loans worth Rs9,000 crore to a stressed assets stabilisation fund. But, since then, the Bank’s reckless advances and continued mischief has brought it to a point where bad loans have risen to a massive Rs18,000 crore again. Ironically, the All India Bank Employees Association (AIBEA) has opposed IDBI’s privatisation on the grounds that most of these bad loans were extended to private business.

It is time AIBEA shows some economic and financial sense. The market valuations of private banks are significantly higher than those of PSBs while their bad loan portfolios are relatively small. Private banks are under shareholder scrutiny while PSBs are being abused by politicians. Privatisation and stock options may be a better deal for PSB employees and also for taxpayers. More importantly, unions can no longer claim innocence or distance themselves from bad banking decisions. AIBEA, as the largest union, has workmen directors on the boards of most banks. Surely, their job is to protect the interests of banks by paying attention to poor lending decisions too. It is time we start asking nominees of RBI (Reserve Bank of India) and trade unions on bank boards what they had done to prevent bad lending decisions. Did they write dissent notes? If not, why should they not be held equally accountable?

Among the officials who are under CBI (Central Bureau of Investigation) scrutiny is Yogesh Agarwal, who went on to head the Pension Fund Regulatory Authority of India (PFRDA), soon after the Rs900 crore loan to KA was pushed through. Even at PFRDA, Mr Agarwal set about undoing the structure of the New Pensions System (NPS), whose main flaw, until then, was the failure to recognise the need to incentivise distributors. When will we begin to hold people in power responsible for the damage they do to the system with their collusion, connivance, corruption or silence? Each of the entities mentioned above has contributed to the massive bad loans estimated at around Rs8 lakh crore by the government.

At Moneylife, we are aware of several smaller bank unions that do act as whistleblowers and aggressively protect banks’ interests. The Corporation Bank Officers Union and Dhanalaxmi Bank’s Union are two that come to mind along with the Subhash Sawant-led The Indian National Bank Employees’ Federation at the Central Bank of India. Interestingly, Mr Sawant has filed litigation in his effort to make the Bank’s chairman and executive directors more accountable for bad lending; but his effort finds little support even from RBI. Worse, in a vindictive action for trying to highlight the bad loan issue, the Central Bank’s management has even tried to freeze his retirement benefits. If whistleblowers who are trade union leaders face such pressure, one can only imagine how any dissent by lone officials is crushed by banks.

(Corrected: Corporation Bank Officers Union)

Comments

User

Phanindra Rao Nooli

9 years ago

Neither the Officers Association, nor the Employees Union in IDBI Bank is allowed to sit in Board. Also, 90% of officers in IDBI Bank work in lowest positions who don't have a clue of Whats happening at higher levels. Most of these officers are used in Retail Banking Group and Transaction Banking Group which generate very high profits each year for the bank. Most of the NPAs happen in high profile loans in which the decision making happens at higher levels. So it is not correct to penalise all the staff (officers+Employees) and brand them as corrupted if a hand full of staff (in top management) do anything wrong. It goes without saying that the Top Officials of the banks are chosen by the govts to run the banks.

PRAKASH D N

1 decade ago

Bank Unions do have a responsibility to protect their Bank especially when they have a representation on the Board. But most of the times, it is observed that the representative Director does not discharge his role and become a mute spectator for getting benefits from the Management and claim that he has got something for his constituency. Wherever, the union representatives are alert and effective, they can definitely stop the excesses by at least noting his dissent and get it recorded. But it is learnt that the Board decisions are not recorded unless the Director has the guts to get it recorded.

There is a need for strengthening the protection to whistle blowers especially when the top Management and the political class join to stifle the dissenting voice (eg. Central Bank as mentioned).

D N PRAKASH,
RETD BANK MANAGER

Manoj Bhatt

1 decade ago

I am from a small town and have an account with IDBI Bank apart from HDFC Bank and SBI Bank. What i liked about IDBI was that they had the professionalism of a private sector bank at the cost of (charges) a public sector bank. It is unfortunate that such a young bank has to face such untimely sickness due to the flagrant management of its top brass. I fail to understand why Union Leaders and also the Political class want to serve their own interest in the name of common man.PSBs officials are a nightmare when a common man goes for a loan and demand their share of booty to facilitate the loan. But the story is all together different when they enjoy the evening cocktail with a businessman only to obligate him the very next day in the bank. What these officials learn at the mofussil level they replicate at the Board level for very few of them could learn to stand up due to their underdeveloped spines.

Mohan Damodaran

1 decade ago

Over a year ago I had tweeted how there was something rotten there in IDBI.However still I don't think privatization is the only solution.

Devidas Tuljapurkar

1 decade ago

Bank employees are opposed to privatization of public sector banks as also opening up of new private sector banks not in their own interest but to safe guard common mans savings. There is empirical evidence for this argument. Even in recent global financial crisis US, UK had to resort to bail out. What it means? This is world wide phenomenon and not isolated. In India also we have experienced this on many occasions. This does not mean that in PSB everything is all right or we are defending wrong doings. We are for CHANGE but not to kill the institution itself. We are in favor of changes which aim at further customer orientation. We are prepared to amend our-self also.We are prepared to introspect also. We are open but with some logic and rational based on empirical evidence and not to appease anybody. Hope we will be understood in proper perspective. Devidas Tuljapurkar

Sucheta Dalal

Replied to Devidas Tuljapurkar comment 1 decade ago

Mr Tuljapurkar

The common man is being RIPPED OFF by public sector banks through A) HIGH ATM CHARGES, b) high transaction charges c) being tagged as defaulter for tiny loans and harassed e) low interest on savings accounts f) high cost of even electronic transactions and safety SMS messages which started FREE.

All these charges are levied under lobbying by private banks. PSU banks remain mute spectators. SBI is the first to agree to higher charges becuase it is the common man who shores up their bottom line.

PLUS -- far from protecting the common man's interest, bank unions by blind opposition are doing damage to all of us.
All are happy with the recapitalisation of banks to make good losses of wilful defaulters.
Over Rs10,000 crores is used for recapitalisation almost every year -- this is more than the entire annual budget of several ministries!! Where has the UNION ever protested?
What about the case of UBI, where action has been initiated against Mr Narang for going after wilful defaulters? Where is AIBEA in supporting him?? Read ET today.

YOUR UNION LED BY MR UTAGI had promised to join our fight about charges imposed on ordinary people. We got no support.
I personally requested Mr Venkatachalam for help since a case was filed in the Madras High Court. Silence. In fact I got a copy of the plaint myself. As a small NGO we did not have the resources to file the case, even though a draft is ready.

I find it HUGELY IRONIC THAT AIBEA IS PICKING UP A FIGHT WITH Moneylife, rather than with the government.

I think you need to understand things in perspective.

PPM

Replied to Sucheta Dalal comment 1 decade ago

AIBEA is worried about only the Salaries, perks and retirement benefits and they do not know who the common man is!!!

C H VENKATACHALAM

1 decade ago

the beauty of democracy is that any body can have any view without knowing the facts and still make comments or write articles. If privatisation of IDBI Bank will ensure recovery of all bad loans, we will re-examine our stand. AIBEA

Chandragupta Acharya

Replied to C H VENKATACHALAM comment 1 decade ago

Such a caustic reply from AIBEA is not appreciated. If there are error of facts or differences of opinions, one may clearly state so, and argue on the merits of the case. As a common man, I do see merit in what has been written. Can you deny that bank unions, ever eager to oppose progressive reforms and demand salary hikes, have been mute spectator to this loot of taxpayer money?

C H VENKATACHALAM

Replied to Chandragupta Acharya comment 1 decade ago

i am sorry you do not know what we are doing.

PPM

Replied to C H VENKATACHALAM comment 1 decade ago

Sure, we do not know what you do as AIBEA is only interested in getting increase in salaries, perks & retirement benefits and interest free loans for the members.

Sucheta Dalal

Replied to C H VENKATACHALAM comment 1 decade ago

That is funny Mr Venkatachalam. You have not found me a "anybody" when AIBEA invited to speak at your conferences or circulated my articles.

A good trade union leader must be open to all points of view -- not praise a journalist only when your view co-incide with mine.
Also, isnt a reasoned response far better? Let us have a open debate on this !! Moneylife Foundation will host it.
We , the consumers are the LARGEST stakeholders -- our problem is that we are not united and organised like the large trade unions.
Isnt it time bankers, policy makers and trade unions paid some attention to the customer and customer -needs too?

Lets try and do that for a change and IN NATIONAL INTEREST!!

C H VENKATACHALAM

Replied to Sucheta Dalal comment 1 decade ago

Madam you know my special regards and high respect for you. We will continue to invite you to our platform to share your valuable views. We will circulate your views on idbi also to our members. No issue. We will welcome an open debate also. But some of your remarks in the article are hurting us as they are not true. Hope you will understand us better. Thanks and regards. CHV AIBEA

P b Sarma

1 decade ago

The subtle crushing of honest dissent and encouragement of yes men who are inefficient and dishonest ,is the root cause of NPAs.Promotions are given to only these who reach targets by fair or foul means and quality of work is totally forgotten.In the process only officers with dubious records got promotions.The rest is history.

Ravindra Shetye

1 decade ago

The loans are afterall sanctioned by a set of the Bank Employees and they must be held fully responsible for the loan default. In fact the defaulted loan files must be opened to see who were the persons responsible for the sanction of the loan and whether they followed the standard procedures laid down.

PPM

Replied to Ravindra Shetye comment 1 decade ago

Yes, Let all the NPA files be scanned and uploaded in the bank's website for the customers to see.

B. Yerram Raju

1 decade ago

Privatisation is no solution to such banks. They should only be wound up in the interest of the society and tax payer.

I have been untiringly asking for fixing the responsibility of directors of boards for the malaise of the banks in credit origination - group loaning decision that conveniently gives a long rope for irresponsible and non-transparent decisions -, risk management and NPA reviews of accounts larger than Rs.5crores.
Mrs Dalal has done justice by raising the question of workmen and officer directors' responsibilities.
They raise their voices only when any disciplinary action on employees' is taken up at the Board level as they think that they represent only employee constituency.
They seem to think that taking up issues relating to the health of the bank makes them unhealthy.

P b Sarma

Replied to B. Yerram Raju comment 1 decade ago

Private banks also became bankrupt.But the culprits are not punished.They are taken over by PSBs and the loss was borne by PSBs and indirectly by public at large.Tomorrow if a private bank becomes bankrupt who will take over that bank when all are privatised.If it is not taken over public suffer and lose all their hard earned savings.

Ramesh Poapt

1 decade ago

idbi bank should have securities of land bank of trillion of rupees of borrowers being erstwhile idbi. what about its valuation and selling that?

PPM

Replied to Ramesh Poapt comment 1 decade ago

Good idea and as you aware, most of the NPA linked land has NIL value or not even cover the recovery cost.

O B DHOOT

1 decade ago

Even RBI protects the their own officials who are involved in corrupt practices and punish those who raises their voice against them.

sohan modak

1 decade ago

Good anaysis.Why then was IDBI allowed to acquire prosperous, although contentious, bank like United Western Bank? UWB had a psitive balance sheet and IDBI just plain ate it all up.

Shankar Bharadhwaj

1 decade ago

I filly agree with the article , it now the lid is blown off evry one fiengs ignorance, lets face it , Banks do not want to solve any issue even if you bring it to their notice,have come across instances when informed to banks with proof they chose to remain quiet, then even find fault with the person who gave the info and in some cases informed the promoters .

Ranjit

1 decade ago

Attach properties of responsible authorities who sanction loans alongwith the businessmen irrespective of his/her political alignment ,that could not be recovered and put them in JAIL. Relevantly,
RANJIT SINHA's properties, by now should have been attached and his retirement benefits should have been curbed.

vnrao

1 decade ago

coverting IDBI into bank to save sinking lending institution is a big mistake of UPA IDBI is habituated to lend money on politican connection.Though it is bank beyond capacity lend it to all infra companies it better to investigate punish the executives who also took benifits made bank a sick organisation