Syndicate Bank fallout: Others may go slow on corporate lending

BL Aug 5 ,2014

With CBI keeping an eye on senior officials, decision-making is likely to slow down

BANGALORE/NEW DELHI, AUGUST 4:  

Bank lending to the corporate sector may slow down as fear grips officials at public sector banks following the crackdown on Syndicate Bank CMD Sudhir Kumar Jain this past weekend.

“Decision-making at public sector banks may slow down as this (Syndicate Bank incident) has happened despite the committee approach followed by these banks in recent years,” a chief executive of a PSB said. A committee-based approach involves a group of senior officials coming together to sanction credit.

The Central Bureau of Investigation (CBI) on Saturday arrested Jain for allegedly receiving bribe of ₹50 lakh for extending advances to steel companies Bhushan Steel and Prakash Industries, bypassing rules. Along with Jain, eleven others were also arrested by the investigating agency.

Moderation likely

“The immediate reaction, as and when such things happen, where top people are involved, is that banks stop lending,” said a banking analyst at a domestic brokerage. “There will be moderation in lending for large corporate accounts and incremental sanctions may take a hit,” the analyst added. It is estimated that corporates accounted for 40-50 per cent of the overall banking credit.

However, lending to micro, small and medium enterprises (MSMEs) and sectors such as retail and agriculture, which have been a focus area for PSBs, may remain unaffected as the loan amounts are usually small, the analyst added.

Also, the fact that CBI is keeping an eye on other senior officials of prominent public sector banks may prompt the banking officials to turn cautious, thereby impacting corporate lending.

However, not all are of the view that the Syndicate Bank incident will affect corporate lending.

“I don’t think it will adversely impact corporate lending. What happened is a one-off incident. Accidents do happen. It does not mean we should stop driving on the road or vehicles should stop plying,” said the chief executive of a public sector bank, who did not wish to be named.

Meanwhile, the scrips of Syndicate Bank, Bhushan Steel and Prakash Industries tanked on Monday. Syndicate Bank ended 7 per cent lower at ₹134.45, while Bhushan Steel closed 4.23 per cent lower at ₹378.15. The scrip of Prakash Industries shed the most to end 19.96 per cent lower at ₹89 on the BSE on Monday.

Syndicate Bank, meanwhile, informed the stock exchanges on the action against its CMD. “We would like to inform you that we have taken steps for smooth running of banking operations,” the bank said in a note to the exchanges.

(This article was published on August 4, 2014)