Overstating banking stress will debilitate lending: Vinod Rai

Pune, April 20 (IANS) There’s no need to overstate the stress in India’s financial system lest it instills fear among executives and freezes decision-making in crucial areas like disbursal of loans, says Vinod Rai, chairman of the recently-constituted Banks Board Bureau.

“The banking sector has seen a considerable stress in recent years,” Rai, who was the chief of India’s official audit office and during whose tenure scores of alleged scandals including the ones on coal allocation and telecom were unveiled, said here on Wednesday.

“But we should not allow the cacophony of uninformed voices to debilitate the decision-making capability of bank executives. Problems are immense but it is not that we have not faced them in the past,” Rai said at the central bank-run National Institute of Bank Management.

He said it was normal for projects to undergo cost overruns. “But quite often the problems are creations of the global economy — they need not be magnified to create an alarmist situation leading to a backlash where banks become risk-averse to lending afresh.”

Addressing the 12th convocation ceremony for post graduates in banking and financial services at the institute, Rai also said if prudence is ignored, it will naturally attract the eyeballs of vigilance agencies, since public money is not meant to be cornered by vested interests.

At a time when Indian agencies are trying hard to get industrialist Vijay Mallya to return the Rs.9,000 crore he took for his companies from banks, Rai said normal loan advancement must not be stopped due to a few cases of mismanagement.

“These borrowers comprise a small minority.”

The government constituted the Banks Board Bureau in February this year to recommend the appointment of directors in state-run banks, and advise on ways of raising funds and dealing with stressed assets in the financial system.

–IANS

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