Dr. Sanjiv Agarwal
When money speaks, nobody bothers for grammar. This is what has been proved by recent surfacing of bank loans as a cross breed of bribe-corruption. Bribe, unethical behavior and corruption- its all in India’s blood and system now – be it using office stationery, personal use of office car, jumping a red right and getting scot-free for few hundred rupees to income tax refunds, transfer postings or land allotments, telecom scam, sanction of loans or getting monetary benefits by use of discretionary powers (like the one recently unearthed). Not long ago, there was a case for a stock broker entering the corridors of power with brief cases. The corruption at IPL, Common wealth games, Adarsh housing society , sugar scam, fodder scam, are just few which come to mind.
Once again nexus between reality sector (builders, developers, industrialists) and senior management of banks through professional intermediaries popularly known as loan syndicates/ investment bankers has been proved. This only leads us to debate that whether the borrower in dire need gets money from banks in normal course? When lenders have the discretion for distributing the money which is not their own but a public money, the lenders have to do due diligence on the project and the promoter. The companies or potential borrowers engage the services of intermediary to find a supplier of money for their needs, of course for a fee known as syndication fee or arranging fee but certainly not a bribe to be offered to some one who helps getting the loan sanctioned. Loan syndication per se is not bad and is a normal business practice in banking system. We have even public sector bankers engaged in loan syndication. What is more concerning is the way loans are syndicated today, particularly by private service providers such as financial service companies, one of the sort of Money Matters.
Another shocking concern is the governance at banks as well as finance companies. In many cases it is seen that the top bankers and executives join the private sector for post retirement employment in companies which are in direct competition with the banks from where such officers retired. RBI ought to check this practice forthwith from good governance view point of both the entities. Needless to say, such people use their influence in decision making process which leads to dilution of quality of decision. In many cases, jobs are undertaken in borrower companies. Today, unethical business practices have assumed gigantic proportions in Indian business causing great loss to shareholder value and exchequer. Things become worse when such people join the company boards as directors, like the present case. There is also a need to filter the nominee directors by bringing comprehensive eligibility norms.
In banking parlance, all loans do not enjoy equal liking and there are certain sectors like exposure to capital market or real estate which are considered more risky and are thus considered sensitive. As per RBI guidelines also, such loans are subject to higher risk weights. Riskier the asset, higher the price for scarce debt. Banks do lend to these sectors which give them greater spread, though with higher risk but banks limit the exposure to internal prudential limits and RBI guidelines.
The present bribe for loan is surely an ethical issue. There is a need for uncompromising emphasis on integrity and regulatory compliance, besides clear distinction between personal and corporate goals, needs and results. It is high time now that India awakes to check this ailing economy from bribe, corruption, greed and non performance by dealing with such cases and people strictly.
The current loan racket will breed in more problems for real estate sector. First, the funding for reality projects will take a beating, both via capital market as well as from bank loans. Two, already slated IPOs may have to be deferred in view of present market sentiment for reality stocks. Third, property demand may further slow down due to higher valuations and developers and builders will have to sell the stocks cheaper. Housing loans will become difficult and as such genuine home buyers may face the irk. If the liquidity does not improve for real estate businessmen, they may take resort to restructuring of bank loans once again. This fear is also disturbing bankers. It would be desirable for the financing agencies to understand that the present crisis is due to corporate loans to builders and not due to individual housing loans. Such individual loans have no connection whatsoever with the bad loans. What is expected from real estate companies as a damage control exercise is to improve their financial and non- financial disclosures and do some trust building exercise with the banks and lending institutions. In present scenario, only better and transparent disclosures would heel the damage done, so far as banks and regulators are concerned. As of now, lenders have turned cautious and some are even scared about potential NPAs. Also, loan syndicators would be looked at with suspicion, and rightly so. They also ought to deal with good and genuine promoters in their long term interest.
Also, investigative agencies will have to be made more responsive, accountable and independent. Our economy can grow at 12-14 percent (presently 8.5%) if corruption is rooted out. Henry ford said- A business that makes nothing but money is a poor kind of business. Money matters but if we have to survive, our children have to survive, we all must find a way to return wisdom and highest ethical standards to our corporations and generations to follow.
Though the current bribe for loan can at best be termed as a racket operated by few people in financial institutions and borrowers- intermediaries, the system continues to be strong, insulated and robust. Few instances of personal greed and deviation may not pollute the entire banking channel. Let’s hope so. This hope comes from the fact that India could withstand the 2008 financial meltdown which spread across the globe, only because its banking system was sound and stable.