Banks to review internal systems

Public sector lender Bank of India plans to investigate the bribery scandal in depth and find if more officials could be involved, even as several other bank officials put up a brave face saying such incidents are sporadic and isolated and the issue is not leading to a systemic problem.

“The risk management of the bank will be further strengthened,” said Alok Misra, Chairman of Bank of India. “We will study the episode in depth and see if more bank officials were involved.”

The CEO of LIC Housing Finance R R Nair, the Life Insurance Corporation’s secretary (investments), an independent director of the Central Bank of India, a deputy general manager with Punjab National Bank and a Chennai-based General Manager of Bank of India were among eight arrested by the Central Bureau of Investigation (CBI) late on November 23.

The officials were alleged to have accepted illegal gratification, mostly as bribes, according to the CBI. Three officials of Money Matters Financial Service, who acted as facilitators for loan seekers and allegedly bribed officials, were also arrested. While several loans went to property companies, firms from other sectors too got loans from the banks and financial institutions thus named.

Bank of India has separated its loan sourcing and loan sanctioning functions, Misra told a television news channel. RBI and the government would want a report on the episode, he said. About 3.2 percent of its loans went to real estate sector and 3.3 percent of that were non-performing, he said. “We will be reviewing our systems,” said S Sridhar, chairman and managing director of Central Bank of India. “We are always looking to make changes whether with respect to customers or technology”

It is not a systemic issue and there are lakhs of loans given out each year, State Bank of India Chairman Om Prakash Bhatt told reporters.

Bank of India gave loans BGR Energy, OPG Power and Ashapura Minechem. Loans to BGR Energy is satisfactory, while Ashapura Minechem is an account with Bank of India for over 40 years and loan to OPG Power was yet to be sanctioned, the bank said separately in a statement.

“This incident involves an alleged misconduct of an individual, the bank said. “The bank has a proper structure for sanctioning loans, which is duly observed and the asset quality continues to be good.” In case of Central Bank of India, the official involved was an independent director. Sridhar said he was yet to crystallise his thoughts on if he would ask for changes with respect to appointment of independent directors.