The Finance Ministry has recently issued a uniform staff accountability framework for NPA (non-performing assets) accounts up to ₹50 crores. The guidelines will be implemented from 1 April, 2022 for accounts turning non-performing assets (NPAs) beginning next financial year. The step has been taken to protect bankers in case bonafide business decisions go wrong and lead to NPAs.
In order to provide a sense of security to bankers while taking decisions on credit sanctions and eliminate the fear of investigative agencies for commercial decisions that turn bad, which would later on help the economy, the move has been initiated.
Bankers have provided feedback to the government in past meetings that “sometimes decisions on credit sanctions are slow as banks fear investigative agencies may come after them in case the accounts turn NPA.”
Indian Banks’ Association (IBA), a key stakeholder of the framework, in a statement announced, “The Department of Financial Services (DFS), under the finance ministry, vide its order dated October 29 advised broad guidelines to be adopted by all public sector banks (PSBs) on Staff Accountability Framework for NPA Accounts up to ₹50 crores’ (Other than Fraud Cases).”
Based on these guidelines, the banks have been advised to revise their staff accountability policies. IBA further noted that banks will have to complete staff accountability exercises within six months from the date of classification of the account as NPA.
At present, different banks follow different procedures for conducting staff accountability exercises. Staff accountability exercise is carried out in respect of all accounts which turn NPA.
“This approach not only adversely affects staff morale but also puts a huge strain on the bank’s resources. While punitive action needs to be taken against the officers having malafide intent/involvement, it is essential to ensure that bonafide mistakes are dealt with compassion. There is a need to protect the people taking bonafide business decisions in this competitive environment,” the IBA said.
Moreover, IBA said that at a time when the country requires an economic boost, slow credit delivery to industries due to the fear of implication is a matter of concern and needs urgent address.
Banks with the approval of their board may decide on a threshold of ₹10 lakh or ₹20 lakh depending on their business size for the need of examining the aspect of staff accountability, it said.
In December 2019, Finance Minister Nirmala Sitharaman assured the heads of state-run banks with promises of protection from undue harassment from investigative agencies into their lending decisions. She had said after a review meeting with top bankers from state-run banks that “fear of 3Cs — CBI (Central Bureau of Investigation), CVC (Central Vigilance Commission) and CAG (Comptroller and Auditor General)” was holding back banking decisions. “Decision making was getting affected” due to “concerns of bankers,” she had said.
The government has since been trying to address this issue.