PNB scam: Industry warns against halt on loans; asks Centre to address systemic risks

Lending to corporates should not be choked as a fallout of the Rs. 11,400-crore fraud at Punjab National Bank, especially at a time when credit growth is about to recover and the economy is set to grow at a higher pace, India Inc has cautioned.

The Indian industry had called for better control systems to check financial frauds and had also, earlier, suggested gradual reduction in government holding in public sector banks (PSBs).

“Government, regulators and industry must act fast to address systemic risks in the financial sector. The three key solutions for the banking sector are better management and operational efficiencies, use of technology such as blockchain and big data analytics, and lowering government shareholding in public sector banks,” CII President Shobana Kamineni said in a statement.

Assocham cautioned against allowing the alleged fraud in the PNB to halt the entire system of corporate lending as demoralisation would set in among the top functionaries and employees of government-owned banks.

It was something the country could ill-afford at a time when credit growth was about to recover and the economy was set to grow at a higher pace, Assocham said.

Increased cover

Meanwhile, lenders are now planning to increase insurance cover against delinquencies by their employees to protect bottomlines.

“Frauds of such magnitude and scale... have forced us to consider substantially much higher risk cover than the basic banker’s indemnity policy,” a top public sector bank official said.

PNB had bought a basic banker’s indemnity policy covering employee fraud up to Rs. 2 crore, which would not cover even a fraction of the value of the recent fraud.