CEA to bankers: If you want books in order then let your ‘karma’ be driven by your ‘dharma’

It was a memorial lecture in honour of a legendary banker remembered for his practices guided by ethical behaviour and Krishnamurthy V Subramanian, the chief economic adviser, government of India, left no stone unturned to drive home the importance of abiding by core values of staying highly principled. He was delivering the 11th R K Talwar memorial lecture organised by the Indian Institute of Banking and Finance. Raj Kumar Talwar headed the State Bank of India (SBI) between 1969 and 1976 and continues to be regarded as a highly principled banker.

Responding to a question on what bankers need to learn of governance given the current challenges in the banking sector with reports of bank failures and banks constrained by rising non-performing assets, he urged bankers to be guided by their dharma. Pointing to the latest economic survey, he said, it has a chapter of regulatory forebearance. As a result of the forebearance, he said, not only did the zombie lending happen in the banking sector but also there was the labelling of non-performing assets as restructured assets adding to the problems.

Referring to R K Talwar and his principles and stature, he said, were Talwar to be heading any of the banks today, it would have done none of this and stuck to right conduct and would have had the moral courage to lend right and paint a true picture of the balance sheet and be very transparent when it came to making disclosures on bank performance.“Such people (like Talwar) don’t need incentives and just do the right thing because that is what their dharma demands and their karma is driven by their dharma,” he said.

His comments in relation to governance in banks also add weight given that Subramanian has also previously served as a member of the P J Nayak Committee on governance of banks for the Reserve Bank of India and the Uday Kotak Corporate Governance Committee of Securities and Exchange Board of India. The latest Economic Survey that he referred to talks in detail about the P. J. Nayak Committee (2014), constituted by RBI, and says it “highlighted in its report submitted in May 2014 the twin concerns stemming from the forbearance regime: ever-greening of loans by classifying NPAs as restructured assets and the resultant undercapitalization of banks.” It also goes on to say that “once the forbearance policy was discontinued in 2015, RBI conducted an Asset Quality Review to know the exact amount of bad loans present in the banking system. As a result, banks’ disclosed NPAs increased significantly from 2014-15 to 2015-16. In the absence of forbearance, banks preferred disclosing NPAs to the restructuring of loans.”