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Uniform norms issued for accountability to protect bonafide decision of bankers

The finance ministry recently issued uniform norms- staff accountability framework for NPA accounts up to 50 crore rupees to protect people taking bonafide business decisions. These guidelines shall be implemented from April 1, 2022, for accounts turning NPAs from next year. It is worth mentioning here that the framework shall only cover genuine decision and not those involving malafide intentions.

Revision to Staff Accountability Policies: Uniform Norms

Presently different banks are following different procedures to perform staff accountability exercise. Moreover, this exercise is being carried out in respect of all accounts turning NPA. This can adversely affect morale of the staff and put a huge strain on bank’s resources.

The department of the financial services under the finance ministry advised broad guidelines to be adopted by all public sector banks on staff accountability framework for NPA accounts up to 50 crore rupees. The Indian Banks’ Association stated that banks were advised to revise their staff accountability policies as per these broad guidelines and frame procedures with the approval of the respective boards. The IBA is a key stakeholder of the framework and has been involved in the process right from the start.

The banks need to complete the staff accountability exercise in six months from the date of classification of the account as NPA.

Framework

The framework, dated October 29, provides detailed standard operating procedures to be followed for various category of NPAs as per the amount. The framework guidelines categorises bad loans to 3 groups-

• NPA up to 10 lakh rupees;
• 10 lakh rupees to 1 crore rupees;
• Above 1 crore rupees and up to 50 crore.

In NPA accounts with total outstanding more than 50 crore rupees, staff accountability has to be examined according to the extant guidelines. The framework comes close on the heels of the arrest in a loan default case. Punjab and Sind Bank MD stated that it is a well drafted framework and will help instil confidence in bankers. However, he further said that the arrest of SBI chairman will bring the morale of bankers down.

The guidelines on the staff accountability framework for NPA accounts up to 50 crore rupees have been fixed in consultation with the Central Vigilance Commission. The banks need to modify their existing guidelines and implement the framework for accounts for accounts turning NPAs on/after April 1, 2022.

When the case is referred, the audit vertical can rely upon the audit report of the last 4 years and other investigation or inspection reports such as branch inspection report, special report and credit process audit.

In case during the four year period, available information is not enough, the designated vertical can call for extra information from branch or controlling office etc or can collect the same itself.

It also urged to strengthen the internal audit system with enough manpower and technical support.

Observing that the growing economy heavily depends upon the bank credit, the ministry stated that the government and RBI has expressed their concern on slow credit offtake and have stressed on fear eradication in taking business decisions.

The main objective of this framework is to safeguard employees for their bonafide actions and also to make them accountable for any wrongdoing or any inaction on their part.

Staff accountability should identify and punish those employees who are prima facie responsible for the lapses of non-compliance with laid down system and procedures or due to non-adherence of norms. 

The objective of staff accountability is not to discourage the use of initiative and decision making, but the approach of the bank for staff accountability must be to instil confidence among officials for decision making and to peruse the reasons for the account turning NPA and for non-recoverability of bank funds.

Benefits of these guidelines: Uniform Norms (Staff accountability Framework)

The new guidelines are expected to:

• Boost the morale of PSB employees immensely;
• Will help quell the apprehension that bankers can be hauled up for their bonafide commercial decision gone wrong;
• It will also assist banker to take credit decision quickly and help in supporting economy;
• It will ensure protection to those taking bonafide business decisions in this competitive environment;
• These guidelines will also help in pushing credit growth as it will dispel doubts from the bankers’ mind.

The fear of 3 Cs- Central Bureau of Investigation, Central Vigilance Commission^[1] and Comptroller and Audit General prevented bankers from taking commercial decisions which have chances of going bad therefore, the government and other stakeholders wishes to dispel these fears.

Conclusion

IBA said that when the country is in need of an economic boost, slow credit delivery to industries owing to the fear of implication is worrisome and needs urgent attention. Banks can decide with the approval of their board decide on the threshold of 10 lakh rupees or 20 lakh rupees as per the size of their business to examine the aspect of staff accountability.

The department of the financial services under the finance ministry advised broad guidelines to be adopted by all public sector banks on uniform norms on staff accountability framework for NPA accounts up to 50 crore rupees. These guidelines will be implemented from April 1, 2022, for accounts turning NPAs from next year.

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