Modi govt takes steps to reassure bankers to take bold lending decisions

India's finance ministry to encourage bankers to take bold lending decisions.
CVC has formed an advisory board for the initial examination of suspected frauds in excess of Rs 50 crore.

The Narendra Modi government has taken a series of steps to encourage bankers take commercial lending decisions without fear of action against genuine business decisions gone wrong. Banks have been asked to dispose of internal disciplinary and vigilance cases in a time bound manner to avoid harassment of staff due to lingering of cases. It has also inserted Section 17A in the Prevention of Corruption Act, making prior permission mandatory before initiating probes against public servants.
The Central Vigilance Commission has set up an advisory board for banking and financial frauds (ABBFF) for the mandatory initial examination on suspected irregularities in excess of Rs 50 crore involving public servants of ranks GMs and above, before CVC investigations begin.

The government has modified the 2015 framework on large frauds, removing the personal responsibility of managing directors and CEOs of public sector banks. The department of financial services has asked the boards of PSU banks to create a mechanism to ensure compliance of the timelines prescribed by the RBI and CVC. The DFS instructions issued in 2015 making mandatory examination of fraud for all bad loans exceeding Rs 50 crore have been aligned with the new CVC circular stipulating such cases be referred first to ABBFF.

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It has directed banks to set up a panel of senior officers to oversee the progress of pending disciplinary and internal vigilance cases to avoid procedural delay, causing harassment of employees.

List of steps taken by the government

  • Section 17A has been inserted in the Prevention of Corruption Act, stipulating prior permission before initiating investigation against bankers.
  • Advisory board for banking and financial frauds has been constituted for initial probe of suspected frauds above Rs 50 crore.
  • Personal responsibility of managing directors and chief executives for compliance with timelines removed.
  • A panel of senior bank officers to monitor progress of pending disciplinary and internal vigilance cases against employees.

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