‘BANKERS MUST FOLLOW PRUDENTIAL PRINCIPLES IN LENDING’

With the bribes-for-loans scandal still fresh in public memory, the President, Ms Pratibha Patil, today asked bankers to uphold the “highest standards of probity” and follow prudential principles in lending.

“Bankers and money managers have a responsibility to follow principles of prudence and risk management,” Ms Patil said in her address at an event to kick-off the centenary celebrations of public sector Central Bank of India here.

Banks are obliged not to take “unbridled risks” with the common man’s hard-earned money and “some recent odd aberrations” should be a caution for all banks to check their procedural and monitoring mechanisms, she said.

“All procedures and due diligence, consistent with approved guidelines must be adhered to while approving loans by competent authorities,” the President said.

The comments come within a month of the arrest of seven people, including the Chief Executive of LIC Housing Finance by the Central Bureau of Investigation in connection with the scandal.

According to the premier investigating agency, senior officials from public sector lenders allegedly accepted bribes through middlemen to clear the loan proposals of large corporates.

The names of many public sector lenders and a slew of beneficiary corporates also tumbled out post-the arrests.

Bankers have maintained that this was an isolated case of misdoing by some individuals and clarified that the expose does not point to any systemic risk.

Interestingly, the President’s comments came at a function of Central Bank of India, whose name also got dragged into the scam due to the arrest of one of its independent directors.

Stating that such instances should not occur again, the President reminded banks that they play an important role in building transparent and accountable systems, which can contribute in preventing financial improprieties.

Further, she said the causes, impact and lessons of the global financial crisis which is widely blamed on imprudence by bankers and overlooking by regulators, should never be forgotten.

A “major collapse” of the world economy could be averted because of the co-ordinated stimulus measures undertaken by the G—20 nations, she said.

India, she said, has been strongly speaking against the adoption of protectionist measures by some nations and demanding the continuation of international coordination, as the global economy “still requires a strong and sustainable growth pattern to stabilise”.

SOURCE: http://www.thehindubusinessline.com/blnus/17231501.htm