RBI starts inspection in Syndicate Bank case

The bribery episode at Syndicate Bank throws up ‘governance’ issues at some public sector banks, says Raghuram Rajan

Syndicate Bank chairman and managing director S.K. Jain was arrested by the CBI on Saturday for accepting bribes to extend credit facilities to companies. Photo: Bloomberg

Live mint 4 Aug 2014

The Reserve Bank of India (RBI) has initiated an inspection atSyndicate Bank Ltd following allegations that the chairman and managing director of the bank had taken bribes to sanction loans.

The bribery episode at Syndicate Bank throws up “governance” issues at some public sector banks, RBI governor Raghuram Rajan said on Tuesday. He, however, cautioned against “extrapolating” the incident to the whole public sector banking space.

“Inspection of Syndicate Bank is going on but one has to be careful about extrapolating it to other banks. It is important to ensure that a full investigation is done and the investigation agencies are doing it but a balance has to be maintained. While the culprits must be brought to book it does not have to be a witch hunt which impacts credit appraisals,” Rajan said in a post credit policy interaction with the media.

Syndicate Bank chairman and managing director (CMD) S.K. Jain was arrested by the Central Bureau of Investigation (CBI) on Saturday for accepting bribes to extend credit facilities to companies.

Responding to a question on whether the RBI needs to keep a stronger check on pricing of loans in order to ensure that discretionary powers of bankers are kept in check, Rajan said that, to some extent, bankers have to be allowed to make decisions based on judgement.

“We cannot take bankers out of the equation. Banking is such that bankers and borrowers have a certain chemistry. that is what relationship banking is all about. It helps bankers to understand whom to give how much loans and whom not to,” Rajan said.

“If we take bankers out of the equation we might as well have machines in their place like credit scores. It is hard for us to do. Banking is also about judgment. We have a lot of highly qualified and highly credible people working in public sector banks, we have to give them the space to work because they are working for the nation,” Rajan added.

On Monday, Jain who is in CBI custody, was suspended from the bank by the government. The bank’s stock had fallen 9% on Monday.

On Tuesday, the bank assured all its stakeholders that the fundamentals of the bank continue to be robust and bank is functioning normally.

At 1:53pm, Syndicate Bank was trading at Rs.134.40 on BSE, down 0.04% from previous close while India’s benchmark Sensex Index down 0.50% to 25,609.62 points.

    

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)

Syndicate Bank CMD suspended

BL 4 Aug 2014

The Department of Financial Services, Ministry of Finance, has placed Sudhir Kumar Jain, Chairman and Managing Director, Syndicate Bank, under suspension with effect from August 2, 2014, the bank said in a notice to the BSE. 

This action comes in the wake of the Central Bureau of Investigation registering a case against Jain for allegedly receiving a bribe of ₹50 lakh to grant credit extension to two private firms.