Don't poach loans from rivals, FinMin tells PSU banks

MUMBAI: The government has warned state-run banks against poaching loans from another bank as such a practice may be unhealthy and generate bad loans. The finance ministry has directed lenders to be more careful in case of takeover financing - when an account is moved from one bank to another.

There have been instances of an account turning sick soon after a bank has poached it from another, the ministry said. Hence, such "takeover of loan should be done only on merit basis", said the ministry in a note. While refraining from banning it altogether, the ministry has directed banks not to grant concession to borrowers while taking over loan from another bank.

Often, to grow their loan book, banks refinance borrowers at rate lower than a rival bank. Banks also offer liberal terms, such as lower ratio or collateral or longer duration of loan to poach a customer of another bank.

The ministry said the chairman and managing director, and executive director of a bank should declare whe-ther he was a part of the decision-making process from where takeover has happened. If so, it should be brought to the notice of the board. This is in the backdrop of several accounts moving from one bank to another, trailing the movement of the CMD or ED in state-run banks.

"Typically, when the top level move from one bank to another, they take with them some customers - a practice that is being discouraged by the finance ministry," said a senior bank official on condition of anonymity.

Sources from banking circle say the issue of takeover financing was discussed between the finance ministry and bank chiefs in their last meeting in Delhi where DK Mittal, secretary, financial services, asked banks not to indulge in takeover of loan.

However, KC Chakrabarty, deputy governor, Reserve Bank of India, felt such a practice cannot be completely discouraged. "At times a customer may be unhappy with the prevailing lender. He should, therefore, have the right to choose a new lender," said Chakrabarty.