I have seen, met, and done some business with many promoters and many bankers. When Raghuram Rajan makes the right noises about NPA reduction, it sounds good. However, at 53 years of age you turn cynical and skeptical about the whole process of bank lending, collections, and monitoring the loan.

A real big promoter comes to the bank just to take a loan. Once the formalities are over it is the employee who deals with the officers of the lending institution. The entrepreneur comes in a cycle to take a loan, but comes in a Merc to tell the lending institution that he cannot repay the loan. As long as the loan is being serviced and the installments being paid neither the bank nor the lending institutions bother about the client, his business or what he does with the money. However if there is some delay the institution wakes up.

If you have done audits in your life, you pick the illness signals pretty fast. It is very sad and almost shocking that many of our bankers do not pick the illness signals. Promoters use the money to invest in mutual funds, in debt schemes, use working capital to fund assets, create JVs without adequate working capital,  – and the banker sits through all this. The board members are worse. One promoter tells me about an institutional nominee – “Of course Subra he opens his mouth, he has to eat the sandwich”. So if institutional directors do not even open their mouth, are willing to grovel when they are asked to bow, do not take the trouble to understand the business – honestly what better performance do you expect?

On the other hand I know one independent director who is quite a terror -he is completely ready with his home work, meets the executives privately (paying for the hotel bills himself, paying for the indemnity insurance himself too!). I know that once he commissioned an independent agency to do some work on behalf of the company, but did not inform the company till the work was over. He gets a sitting fee of about Rs. 25Lakhs – and I think he deserves every rupee.

The promoter has a net worth of Rs. 20 crores (at least) and he comes to meet the officer who has a salary of Rs. 8Lakhs after 20 years service. There is no way a banker can be abusive or tell him “Look you #$%^& pay up the money or I will take you to the cleaners”. I have seen entrepreneurs who have a JV with a more aggressive (and cheating) businessmen struggling to deal with the thieving promoter. In one case we would train, coach, encourage, an entrepreneur outside the door of the board meeting…but he would chicken out inside. I have seen brilliant bankers who would call entrepreneurs ‘tum to chor ho’ – to a guy one’s fathers age…but Mr. Gupta (I think he was in IDBI in the 1980s)..were an exception. Most businessmen can brow beat the banker.

We need lots of changes. So Raghuram Rajan will make noises, grab TRP, impress the kids in college but some of us are too sure that nothing much will change. Alas.


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  1. Very correct ground level issues has been highlighted. thanks !!!! truly this is what reality is.

    I will like to share another aspect , Financial institutions are today driven by numbers growth in loan book, profit percent, growth in number of 1 million dollar accounts. In such a scenario where growth and incentives are key drivers most of the junta would forget good governance and look at short term.
    Subra sir with due acknowledgement don’t you think defining and highlighting good governance can reduce NPA even marginally !!!

  2. Friends,
    A friend from a PSU bank has been dismissed as he headed a branch in Mumbai City & sanctioned Car Loans which turned out to be fraudulent. He has pleaded that the higher management has put big pressure on the branches to sanction & disburse Car Loans in 2 days, not given access to CIBIL portal,no instructions or guidelines on verification of AS 26/Form 16 or ITR except matching photocopies with the purported originals which are easily fabricated. He has explained by way of mitigating circumstances lack of support in the form of risk management by the higher authorities who put intense pressure by giving unrealistic targets which are to be achieved in double quick time leaving no time for any cross verification.The Regional & Zonal Authorities could have at least assisted by randomly cross checking at the different RTO’s for authenticity of the submitted RC Books. Such frauds which continued for over 18 months before being detected could have been nipped in the bud by having a structure to manage risks.While the higher management goes Scot free, this branch head will be loosing his Pension & Gratuity etc. No wonder, NPA keeps piling up in the system.


  3. During my last year trip to India, noticed one particular branch of a big pvt bank was closed for customers but I could see staff still working inside. I was in casual wear and thought of talking to BM but security did not let me in. While I was there, a guy got down from SUV with all gold rings to his fingers was allowed inside by the same security guy. I then gave a call from my mobile to BM and he came rushing outside to take me in. After all, in his own words, he can’t ignore me being the highest depositor with that branch. Once inside, I have learnt that other guy with all gold rings came for loan.

    Each visit of mine to India leaves me in despair with descrimination all around. I walk into business class of airport tkt counter, am stopped to check my tkts where as Goras are freely let in. In 5 star hotels, am assumed to be anyone else other than customer. On the street, everyone is judging me by the phone I carry or the car that am travelling.

    When I speak politely and courterous, everyone takes it as weakness and try to ride on you. Many sales staff does not try to understand who you are but quick to assume you as dumb and try to dump whatever they are selling. Sorry to vent my frustration.

  4. @Krish: India can have that effect on NRIs! No wonder we live different forms of lives in India and abroad – rude on one side, polite and courteous on other.
    I experienced that culture shock once after I came back from US, and then I adapted 🙂 That is the only thing you can do!

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