There has been a growing concern for last few years that public sector banks (PSBs) are not able to fill their staff position at project appraisal and credit teams, with younger employees not interested in building a career in areas where decisions could later come under scrutiny from investigative agencies. If banks are not able to make a healthy pipeline in credit appraisal/assessment teams, and there are not enough people with desired credit spark to appraise a project, chances of money being approved for doubtful projects would be accordingly higher.
We need to acknowledge the problem which still continues unabated. In future, banks may have to get their projects evaluated by third-party private sector experts. Senior bankers confide and are unhappy at what they see as law enforcement agencies harassing bankers on not clearly established charges. The Government needs to spell out what it exactly wants from PSBs and convey their strategies in clear terms to bankers. Nothing should be vague. This would do the country immense good.
Incidents (bank officials’ arrest and the like) are detrimental to the morale of bankers and result in further freezing of decision making. It is, however, promising to note that during last one year or so there has been efforts on the part of the Government to allay the fears which is most welcome, but bankers expect more concerted efforts towards this.
Getting talent for credit teams is a problem that public sector banks have had for some years, particularly since Kingfisher Airlines burnt a hole in banks’ pockets and investigative agencies knocked at the doors of the senior management in the concerned lending Banks. There have been occasions in recent past where employees have to be forced to join the project management team, with not many volunteering.
Earlier functions such as project appraisals, corporate credit and treasury were the most sought among younger recruits—-these fields accelerated the promotion path.
The contrast between capital investment in specific fixed assets and in current assets such as stocks, can be likened to the risk of making a single false move in boxing compared to a mishit in tennis. Project loans are more complicated in nature involving various complexities and hence require different skill sets. It hardly needs any emphasis that project appraisal and the term lending thereof is qualitatively much riskier proposition than working capital advances. Project loans entail longer tenor and understandably, longer the period/tenor, greater the risk attached to the loan.
It is an undisputed fact that even well appraised projects may flounder, and such projects may sink due to various imponderable factors which are not known to the appraising/assessing officers at the time of taking a decision to finance the project.
Because of the inherent risks/complexities involved in a project appraisal, the appraising officer has to take pains to examine all the relevant facts and assumptions of a project before coming to a decision. However, a detailed appraisal would only go to reduce (not completely eliminate) the large area of ignorance and uncertainty with which all human beings suffer while trying to peep into the future. The appraisal merely seeks to determine the most likely course, amongst so many alternatives, which significant events would take in a project spread over longer time horizon, say of 10 years or more. It is axiomatic that all the facts relevant to business decisions (more pronounced in case of project appraisal) can not be known at the time of making a decision. Unfortunately, when things do not go as envisaged, disciplinary/investigative proceedings against the concerned bank officials tend to ignore this basic fact on many occasions.
Also, many officials are hesitant to take up credit assignment in project finance, especially on big-ticket projects due to laxity in professional standards and weak training in appraisal and monitoring. Sub optimal training in these fields saps their confidence on taking such positions. Financing projects has always been considered a specialized activity requiring updated domain knowledge and experience in appraising projects. The eventual success or failure of the project, and its consequent impact on the quality of those large assets depends largely on underwriting skills with meticulous evaluation.
Conceptually, project appraisal and financing involve limited recourse or sans recourse financing with the risks associated with such financing and requires not only a different approach to lending but also a different mind-set of the dealing officials, free from any lurking fear. Banking sector as a whole and public sector banks, in particular, have to operate cautiously and efficiently in a VUCA (Volatile Uncertain Complex Ambiguity) environment which also provides lots of opportunities.
At present, only a few banks (like SBI having a separate business unit namely PF & S SBU) have robust skill sets for project appraisal, credit monitoring and management. Earlier too, many public sector banks have depended on approvals from large lenders like State Bank of India and term lending institutions such as IFCI, IDBI or ICICI–the latter two have since turned into banks themselves. State Bank of India took the proactive initiative as early as in 1996 to set up a strategic business unit namely PFSBU (now called PF & S SBU) dedicated for project appraisal with certain threshold for both infrastructure as well as non-infrastructure projects.
Laxity in professional standards viz; audit, valuation, legal-exposes the credit officials to the risk of taking wrong decisions. Sooner or later, they could be pulled up for credit decisions. The spate of arrests viz; arrest of IDBI Bank officers in the Kingfisher case or arrests at Bank of Maharashtra on the Kulkarni Developers case did create fear among officers across the board.
There is no gainsaying that it is not easy to deal with investigative agencies, particularly at a junior level. Though these agencies treat senior management with due courtesy and respect but there is no such thing for the mid-level and junior managers. The treatment and language used for them, at many times, is horrendous. Obviously, no one would want to get into a situation where they are mistreated, when there is no difference in salary across various functions.
Bankers also contend that investigative agencies are sweeping in with impunity, without even bothering to check the appropriate law. Besides, investigative agencies might get after executives who might have sanctioned a loan many years earlier, but which went bad recently.
The decision to support bankers legally even after retirement will be a welcome change. The reason is very simple, but this step will have tremendous boost on the mindset of the credit officials. If a private sector banker is arrested, he or she can hire a senior lawyer and get the bail even in a day. The public sector bankers, however, can not afford to hire a decent lawyer.
It is undeniably true that almost all public sector bank staffers are honest and only a handful of bad apples are making life miserable for everyone including the institution itself.
The Government as well as other regulatory bodies, having realization of the grave consequences of the issues, have been slowly but steadfastly attending to the issues in order to ensure that apprehensions lurking in the mind of the credit officials in public sector banks become a thing of the past. In the days to come let us be sanguine that winds of change in the attitude will not just caress the journey but also catapult the credit officials to a mind-set free of any hiccups and fear as far as project loan appraisal is concerned.
Sanjay Kumar Singh
Chief Manager (Faculty),
State Bank Institute of Learning and Development, Panchkula
