Banking is a commercial activity. Its business is centred on lending and investment, which are risk prone. The most bonafide, honest and carefully considered banking decisions can go bad, due to unforeseen swings in the economy and the external environment, which are beyond the control of the most experienced and diligent banker. The beleaguered power sector in India, where thousands of crores of bank loans have gone bad, is one such case. Many power plants have shut down and the bank loans have gone bad, because of the government’s failure to fulfil its promises, either on fuel supply, environmental clearances or signing of power purchase agreements. Infrastructure loans have similarly often turned sticky due to the government’s failure to provide the promised land for construction. Loans to the Sterlite Copper plant can now turn sour, due to the forced closure of its plant, by violent public protests. International trade loans can turn bad, due to the tariffs war initiated by Tump. The bankers are not soothsayers or astrologers who can predict the future turn of events with precision, and such risks always loom large on credit decisions.
In such instances of loans going bad, the bankers cannot be held guilty of criminal misconduct or corruption. But the fact is that even innocent and honest bankers have been hounded by the investigation agencies and the police on unjust charges of misconduct under the Prevention of Corruption Act, (PCA) which so far defined criminal misconduct, to include abuse of position, use of illegal means and disregard for the public interest. These changes are simply too vague and wide and can be easily imposed on any public servant. These provisions of the PCA are draconian and too harsh, a fact earlier acknowledged by Mr. Arun Jaitley too. If this were too continue, no meritorious banker will be willing to be involved in any lending decisions, which will only increase the chances of the bank loans going bad. The lending decisions will also slow down considerably, only to the detriment of the economy at large.
In a much needed relief to bankers, the Parliament has amended the PCA. Bankers will now be guilty of criminal misconduct only if they are found to be in possession of disproportionate assets or they are found to have misappropriated assets. Moreover, a prior approval of the CVC will be needed before the police arrest any senior banker, which at present has been so only in the case of bureaucrats of the level of joint secretaries and above. With this amendment, the honest and non-corrupt bankers have been given adequate protection, so that they can fearlessly discharge their duties. This amendment, however, does nothing to stop political interference in banks, which is one of the main reasons for the giant NPA crisis that we face today. It is time to bring in a law to stop that.