World of Zero Tolerance

Those who have worked in banks, specially in the Corporate Credit (Loans) deptt., would know that granting of loans to corporates is like walking a tight rope. Loans & Advances are bread and butter for the commercial banks and they cannot survive without that. In the present scenario, they are considered as ‘investments’. Thus, a similar skill set is required to grant corporate loans as is required when one invests in a corporate. Like, at times, investment decisions go wrong similarly, credit decisions are also not fool proof despite all precautions.

Unlike schematic Retail segment loans, the loans granted to Corporates require special skills and experience. Though there are guidelines and rules laid down for corporate loans, the situations in corporate world are so dynamic that deviations have to be permitted quite frequently to save the corporate and ultimately bank’s funds. It’s like you can’t have a rigid rule book for driving. The rule book says that you have to keep to your left while driving but if there is some obstruction in front, you need to break that rule, though temporarily, and carry on. This is permitted under the law as a tacit understanding. Same way, there are temporary road blocks in every corporate’s loan life cycle which frequently occur due to unanticipated situations caused by internal/external factors. To a large extant, the loan guidelines understand these scenarios and incorporate flexibilities to take care of such unforeseen situations by allowing quick approvals beyond sanctioned credit facilities/terms - like part release of facilities in anticipation of final approval, ad hoc credit facilities, temporary credit facilities, short term loans etc. This is very common in the corporate credit world and this flexibility in rules is one of the major reasons that the corporates survive in the bad weather with the help of bank’s ad hoc and quick support. Alas!!! Some of those, who don’t survive despite being kept in ICU by the banks, become an eyesore and at times…a big issue.

The bad part is that when a corporate in ICU fails to recover (not every patient recovers in ICU), bank’s vigilance department…some times police, CBI and other investigating authorities and now even media start the fault finding exercise. (Assuming there are no political intentions…) these people will open the rule book because they have never worked in corporate credit so they are far from realities. They don’t realise that you can’t drive on the road if you don’t apply your ad hoc decisions/skills while driving…STRICTLY sticking to the rule book may not be a good choice.

My experience is that mostly (not all) the officials in vigilance department had either never worked in corporate credit or if they were posted…they avoided difficult decisions to carry on a spotless carrier, leaving the corporate to die its own death. Thus, jeopardising bank’s interests. Remember…’Not taking a decision’ is also a ‘decision’ but a ‘bad decision’ because you were being paid to take decisions, which you didn’t. There is a saying in the banks that ‘there is no action against inaction’. But when you take decisions…few of them (not all) may go wrong eventually, these people, including other investigating agencies, become overnight experts in corporate credits…they open the rule book and start questioning you on why a particular decision was taken.

Dear Investigators, while examining a bad loan case, please don’t focus on one account only…look for other corporate accounts also. You will find umpteen instances in the banking industry where the bank officials have taken such courageous decisions and helped the units to survive and thus saved billions of rupees of the banks. These cases will never find place in media because they survived. Only a skilled and experienced pilot knows how to fly safely in turbulence and save hundreds of passengers. Please don’t question him later for not going verbatim by the rule book just because there were one or two casualties.

Banking industry, for decades, is surviving on corporate credit and corporate credits are surviving because of officials who have taken TOUGH decisions in real tough situations, risking their careers. If such officers are questioned later or their integrity is doubted or they are put before the encounter specialists, believe me, bank officials, in future, will stick to rule book ONLY, making it very difficult for the corporates to survive…just think of the ramifications, if you can.