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The arrest of former SBI chairman Pratip Chaudhuri in an alleged loan scam case has set the cat among pigeons on the banking front. Many former and present bankers expressed anguish even as many feared the arrest of a former top banker would deter bank employees from taking bonafide decisions with regard to bad loans.

Arrest comes amid moderation in credit growth

The arrest came a day after the government notified a uniform staff accountability framework for banks to follow in cases of bad loans of up to Rs 50 crore.  The new rules, which come into effect from next financial year, are expected to protect employees from unwanted harassment.  Fraud accounts are outside the purview of the new rules.

Chaudhuri was arrested on Sunday from his home in Delhi by Jaisalmer police (Rajasthan) in connection with an alleged scam. The issue involves assets held by Godawan Group, which received a Rs 24 crore loan from SBI in 2008 to build a hotel. Chaudhuri is accused of selling properties worth Rs 200 crore for Rs 25 crore after the bank seized them for loan default. Media reports quoting State Bank of India (SBI) said the approvals for sale of Godawan properties to Alchemist Asset Reconstruction Company were taken in January 2014 and the job was later completed in March 2014. Chaudhuri retired in 2013 and later in 2014 joined the board of Alchemist Asset Reconstruction.

Another former SBI chairman Rajnish Kumar on November 1 called Chaudhuri’s arrest a motivated action. “This seems to be an error of judgment. There is a due process and set of rules laid out by the RBI for the sale of assets to ARCs. Where is the corruption here?,” Moneycontrol.com quoted him as saying.

“The system being gamed again by defaulters despite all efforts by Modi govt, time for overhaul of judicial processes to improve transparency and introduce accountability,” another banker said.

In the recent past, action by law enforcement agencies have instilled fear in bankers that they would be held responsible for defaults in loans sanctioned by them. The worry has resurfaced now and it is apprehended that loan sanctioning will again move on at a slow pace.

The arrest comes amid moderation in credit growth to 5% in FY21 from 6.8% in FY20 due to various factors.

According to a report in the Times of India, the fear factor will be reflection even in the recovery process. The report said SBI sources alleged that the borrower has sought to frustrate the bank’s attempts to recover the dues for a long time.