PNB: freeze on lending feared

PNB: freeze on lending feared

Context:

• The Indian industry had called for better control systems to check financial frauds and also suggested gradual reduction in government holding in public sector banks (PSBs).

Why in news?

• Recently, PNB found that the SWIFT system had been misused by junior-level branch officials, who had fraudulently issued letters of undertaking (LoUs) on behalf of some companies for availing buyer’s credit from overseas branches of Indian banks.

Solutions for the banking sector:

• Government, regulators and industry must act fast to address systemic risks in the financial sector.
• The three key solutions for the banking sector are better management and operational efficiencies, use of technology such as blockchain and big data analytics, and lowering government shareholding in public sector banks.
• Assocham cautioned against allowing the alleged fraud in the PNB to halt the entire system of corporate lending as demoralisation would set in among the top functionaries and employees of government-owned banks.

Increased cover

• Lenders are now planning to increase insurance cover against delinquencies by their employees to protect bottomlines.