The curious state of India’s government-owned banks where anything can happen

Terrible year, so far.
Terrible year, so far.
Image: Reuters/Anindito Mukherjee
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Strange things are happening in India’s banking system and nobody seems to know why.

On June 20, the finance ministry announced that B Sriram, managing director (MD) of State Bank of India (SBI), the country’s largest lender, will head IDBI Bank for three months as its MD and CEO. Sriram will not relinquish his post at SBI, though. This move followed the appointment earlier this month of MK Jain, the CEO of IDBI Bank, as deputy governor of the Reserve Bank of India, a position vacant since August 2017.

Sriram’s appointment may be a cause for concern as, despite both being government-owned, SBI and IDBI Bank are competitors and are listed on the stock exchanges.

“I can’t recall any other time when someone at one bank was given the leadership role at another bank without them resigning from the previous role,” a research analyst at a domestic brokerage house told Quartz, requesting anonymity. “But the condition of IDBI Bank is already so bad that it can’t be left without a CEO till the government can find a full-time replacement.”

IDBI Bank has the highest ratio of bad loans among all banks in the country, with its gross non-performing assets (NPA) standing at 27.95% in March.

Indian lenders are battling a leadership vacuum at the top. Sriram’s concurrent roles at SBI and IDBI Bank only show how dire the situation is.

Another loan fraud

And there’s more bad news for the sector.

On June 20, Ravindra Marathe, chairman and managing director (CMD) of public sector Bank of Maharashtra (BoM), along with five other bank officials, was arrested for sanctioning loans to a Pune-based real estate firm, D S Kulkarni Developers (DSKDL), without due diligence.

“Bank officers colluded with DSKDL by misusing their power and authority with dishonest and fraudulent intention,” the Pune police officials reportedly said.

Marathe was appointed by the Narendra Modi government in 2016 after his predecessor, Sushil Muhnot, was sacked following allegations of corruption against him. While the government had not offered any explanation for the pink slip issued to Muhnot, it had reportedly expressed reservations about him occupying two bank-owned houses in violation of norms.

Now both Marathe and Muhnot are in the dock for different reasons.

In the last six months, apart from dealing with a staggering pile of bad loans, the country’s banking sector has found itself embroiled in one controversy after another. Frauds, nepotism and favouritism charges, and a lack of corporate governance, are some of the other problems plaguing the sector.