PSBs to introduce common staff accountability guidelines for NPAs

What is the news?

The finance ministry has issued guidelines on staff accountability that aim to shield them from good decisions gone bad. Banks should revise Staff Accountability Policies based on these guidelines and frame the procedures with the approval of their respective boards.

What are the staff accountability policies of PSBs?

At present, different banks are following different procedures. In general, Bank staff will be held accountable if the sanctioned loans turn into non-performing assets (NPAs). And these staff accountability policies are carried out to all accounts which turn into NPAs.

About the guidelines issued by Finance Ministry

The Public Sector Banks(PSBs) will implement common staff accountability policies for loan accounts up to Rs 50 crore turning into non-performing assets (NPAs) on or after April 1, 2022. But this condition will not apply in case of sanctioning loans to fraud accounts by PSBs staff.

Aim: Easing the anxiety of officials at PSBs in extending loans that carry default risk.

Time limit: PSBs should complete staff accountability exercises within six months from the date of classification of the account as NPA.

Guidelines issued by: Department of Financial Services (DFS).

How the staff accountability will be ensured under the new guidelines?

Loans up to Rs 10 lakh: According to guidelines, these loans do not constitute a major percentage of the NPA. So, staff accountability will not be examined if it turns into NPA.

Loans between Rs 10 lakhs–Rs 1 crore: Banks may decide on a threshold of Rs 10 lakh or Rs 20 lakh and accountability depending on their business size. The accountability will be examined by a committee formed at regional/controlling offices.

Loans between Rs 1 Crore – Rs 50 crore: A detailed accountability examination will take place by a committee, headed by an official senior to the sanctioning authority.

Note: Staff accountability will be ensured by the committee after a preliminary investigation of the sanctioned loan.

Loans above 50 Crores: will follow existing guidelines.

What is the existing RBI Framework for Loans above 50 crores turning NPAs?

Banks should bifurcate all fraud cases into vigilance and non-vigilance categories.

-Vigilance cases: referred to investigative authorities,

–Non-vigilance cases: Dealt with at the bank level within a period of six months

Non-vigilance details along with the action taken report may be placed before the SCBF (Special Committee of the Board for monitoring and follow-up of Frauds) and intimated to the RBI at quarterly intervals.

What is the significance of these guidelines?

1. Ensure a common approach across PSBs for accounts becoming NPA and save employees for undue hardships, 2. Protect the staff taking bonafide business decisions, 3. Boost the morale of the PSB employees, 4. Speedy delivery to credit to industries and boost the economy, 5. Eliminate subjectivity and ensure Fair, predictable and transparent systems for staff accountability.

Source: This post is based on the following articles

• “PSBs to introduce common staff accountability guidelines for NPAs” published in Business Standard on 1st November 2021.
• “Confidence boosters for over-cautious bankers” published in Livemint on 2nd November 2021.