Raghuram Rajan bats for state-run banks

MUMBAI: The Reserve Bank of India ( RBI) is independently investigating the developments at Syndicate Bank and is taking a fresh look at the bank's corporate governance practices, after its CMD SK Jain was arrested by the Central Bureau of Investigation (CBI) last week for allegedly accepting bribes to give loans to Bhushan Steel and Prakash Industries.

Briefing the media during the third bimonthly policy, RBI governor Raghuram Rajan said, "There's an inspection under way at Syndicate Bank." He was, however, quick to add that it was a one-off episode and shouldn’t reflect on all public sector banks.

"I think we have to strike a balance and make sure that while we do a thorough investigation and culprits are brought to book, at the same time, it shouldn't become a witch-hunt which stalls the entire credit process."

In the context of the Syndicate Bank episode, he said, "We have to look again at the governance of state-run banks, understand the deficiencies there and try and improve them."

Senior officials from the banking industry said the central bank would look into the processes followed while lending to corporates, the pricing methodology of a loan, and the grounds on which additional loans were sanctioned to stressed accounts.

RBI will also probe big-ticket advances, including the one given to Bhushan Steel. However, speaking to the media on the Syndicate Bank incident, Rajan said, "It does raise troubling issues. It's important for the law enforcement agency to ensure that full investigation is done and they are doing just that."

While criticising the incident, the governor strongly batted for PSU banks. "I would emphasise that one should not extrapolate this to the entire public sector banking system and assume that all the problems in the public sector banks are because of criminality rather than other factors," he said.

The arrest of the bank chief took place at a time when RBI began conducting its annual financial inspection of the bank, said a senior RBI official who did not wish to be named, adding, "It is natural the other issues will also be looked at."