A BANKER’S STORY: It was a high-profile Goa book release for banker Rajnish Kumar (former chairman, State Bank of India) at The Club Lounge of the Taj Resort & Convention Centre on February 15, 2022. The book titled ‘The Custodian of Trust, A Banker’s Memoir’ details the highs and lows of being a banker in India. Guest of honor for the occasion was Chief Secretary of Goa Puneet Kumar Goel and present amongst the audience were several of Goa’s top-notch business persons. The book release was accompanied by a lively interaction with the author courtesy the well-read and witty Suhel Seth (founder and MD of the Counselage). Pic sees author Rajnish Kumar (third from left) with Puneet Kumar Goel (centre) and Suhel Seth alongside

By Tara Narayan

Even if it is a bit of whitewashing of our banking system in collusion with business houses good, bad, ugly!

NOW it would seem all the banking sins of omission and commission are emerging courtesy the memoirs of retired bankers! Bankers who’ve done with their banking life and are willing to draw the curtains on what went wrong in the country when banks were perceived as betrayers of public good — given the litany of bank loan scams going into many crore of rupees, contributing to the collapse of the economy and pointing fingers at banks and the government of the day. Never mind that several defaulting business tycoons declared bankruptcy and fled abroad to live handsomely on the funds they had parked there in earlier years!
The Custodian of Trust, A Banker’s Memoir’ by Ranjish Kumar is a good read even if it leaves one a little aggrieved that after all it is only so much white-washing of a once trusted banking system which failed the people of this country who deserve better. Rajnish Kumar’s tenure as chairman of the country’s largest bank – the State Bank of India -- from 2017 to 2020, were momentous years for these were years when he had to shoulder the responsibility of the Indian banking sector undergoing a tumultuous phase, when all the non-performing loans were coming home to roost one after another with all the accompanying panic and insecurity of account holders. Rajnish Kumar has seen most of it, the trauma of demonitization, the YES Bank fiasco, the sorry saga of Jet Airways, and more examples of NPLs fuelling the loss of trust in the banking system. This is a candid memoir with a former chairman of India’s largest commercial bank offering good insight of how the banking system functions with all its constraints and restraints. Public sector bank chairpersons carry heavy responsibility but unfortunately do not have adequate power to take hard decisions. On the other hand big industrialists enjoy the patronage and support of the Ministry of Finance and in fact there is a full time Minister for banking in the Ministry of Finance. We remember during the Indira Gandhi era of Garibi Hatao, the Minister for Banking used to hold loan mela and force bank officials to lend to petty shopkeepers and others even without any security. In the case of mega industrialists of course our Minister of Banking directed the chairmen of public sector banks to whom they should lend and what loans may be condoned! Rajnish Kumar’s banking memoir covers a lot of mundane and interesting anecdotes about banking life and times in three sections. Part I provides details about the YES Bank fiasco, behind-the-scenes account of Jet Airways, assessment of NPLs from a banker’s perspective, the case of Essar Steel. Part II details SBI’s handling of demonetization challenges and the merger of six banks, cleaning up the bank’s balance sheet, the advent of significant technology through the introduction of its YONO App and the harnessing of latent talent in the bank that enabled it to sail through troubled times; Part III offers glimpses of a banker’s personal ups and downs , the struggles before and after joining SBI and “how I survived a serious childhood illness, completion of my education in trying financial circumstances, the many misses in my career and above all, a monumental personal tragedy that took a heavy emotional toll on me and my near and dear ones. …” (quoting the author in book’s Preface). The Custodian of Trust’ comes with a lot of praise with the hardcover itself carrying industrialist Ratan N Tata’s opinion of the book: “Insightful and exciting reading…This book is not just about the banking system of our country, but a chronicle of contemporary economic history.” “Contemporary economic history” is a perfect description even if is something to feel ashamed about — that the human of the species can be so lacking in conscience, when it comes to stealing, subverting the institution of banking in a country which is supposed to be good Samaritans for aam aadmi but end up being subservient to the big league of khaas aadmi enjoying the expensive thrills and chills of their roller coaster rides oftentimes from humble beginnings to ill-gotten wealth — quite beyond a humble, honest Indian’s imagination!

. Excerpted from ‘The Custodian of Trust, A Banker’s Memoir’ by Rajnish Kumar….

THE BANE OF NON-PERFORMING LOANS

One of the major bottlenecks to growth that the bank constantly faced was NPLs that acted as a huge drag on its performance. The proportion of NPLs in the corporate accounts segment was as high as 25 per cent, and unless there was a recovery in the large accounts, there was no way that banks could improve their performance. Circumstances were thus ripe for accelerating the process of resolution and recovery of NPLs from corporates. In this direction, the introduction of IBC in November 2016 can be considered as a watershed moment in the history of creditor-debtor relationship in India. It was anticipated that the implementation of IBC would lead to legal challenges going forward, as the law was new and all its provisions would be tested in practice. The general perception was that the existing promoters would not let go of their business easily and would prefer to fight till the end rather than giving up. Banks had their own reasons for scepticism and apprehensions about the success of the process mandated under IBGC. The RBI had to initially force banks to take recourse to the bankruptcy code if the amount of NPLs exceeded Rs2,000 crore. Further, 12 cases, the so-called Dirty Dozen,’ as labelled by CNBC, were referred to the NCLT. However, even after four years of their emergence, the resolution of these 12 cases has not fully been achieved. I had objected to CNBC putting the tag ofdirty dozen’ on these cases. Nowhere in the world is such stigma attached to business failures. There are enough provisions in the law to deal with wrong doing by the promoters under both the Companies Act and the Prevention of Money Laundering Act (PMLA) as well as the Criminal Procedure Code (CrPC).
The approach of the RBI in respect of recognition of NPLs and provisioning on these loans was hardening and it was no longer willing to offer any forbearance. The pendulum had, in fact, swung to the other extreme and the bank officials felt that many accounts that had been performing well currently were classified as non-performing’ by the supervisors on technical grounds. Even a bank like HDFC Bank which did not have the problem of NPLs in the corporate segment was not spared the embarrassment of declaring an account NPL, the day after the announcement of its quarterly results. Nevertheless, the word of the regulator was the final word. This led to huge divergences in the numbers reported by the banks and the RBI assessment as there was a time lag between the finalization of the RBI report that was released nine to ten months after the closure of the financial year and declaration of results. Immediately after my appointment as Chairman, I met the then RBI Governor, Urjit Patel, who had earlier served on the board of SBI. This was my first and last meeting with him. As the RBI Governor, Patel had decided to close the doors for all communication with the banks. Even the heads of large international banks were denied an audience with him on one pretext or the other. This gave me strong insights into what was going on in the minds of the regulators. With its image as a regulator having taken a huge beating due to the chaos on the NPL front, the RBI was now determined to rebuild its reputation as a tough supervisor. It felt that it had given a long rope to the banks and it was now time to crack the whip. While no one can question the authority of the RBI as a regulator, it was quite likely that in many case, supervisors would go overboard without realizing the negative consequences of their over-zealous actions. Once an account is tagged asnon-performing’, the flow of funds to it stops immediately, though, in theory, banks can lend additional funding that would be treated as a standard procedure. Mercifully, many such companies are doing well and have been able to avoid the tag of a Non-Performing Account (NPA). But it goes to the credit of the RBI supervisors that in a majority of the cases, their assessment proved to be right and their categorization of NPAs was justified. On my part, however, I had decided that under no circumstances would SBI go to seek any forbearance from the RBI, even if it meant declaring loses for a few quarters. The strategy was to align the provision for loan losses with the estimated recovery and even go beyond their regulatory provisions. In line with the above change in the approach, the bank did not even take the benefit of spreading the provision in four quarters of the mark to market’ losses on the bonds, even though the RBI had allowed it. The bank consequently declared losses continuously for three quarters starting from December 2018. I had sounded Rajiv Kumar, Secretary, DFS as well as the Finance Minister, Arun Jaitley, who in his typical style, showed his agreement with the strategy by nodding his head. His exact words were,Aur kya kar sakte hain, Rajnishji?” (What else can be done, Rajnish?’) It was a shock to many people including my Chief Financial Officer, Anshula Kant, as well as many senior serving and retired officers of the bank, that SBI could actually ever declare a loss. Anshula took some time to adjust to the new approach but once the bank declared a loss in the December 2017 quarter , she was emboldened and stopped worrying about the quarterly profit and loss statement. The corporate accounts group team led by Sriram, Managing Director, was completely aligned form the beginning with the goal of upfront recognition of stress and raising he provision cover on the NPLs. Meanwhile, the NPLs increased by more than Rs1 lakh crore during the financial year 2017-2018. The RBI, however, still assessed a divergence of Rs12,000 crore in the reporting of NPLs. It is not as if there was any deliberate attempt by the banks to under-report their NPLs but it was the overall regulatory approach and the forbearance given by the RBI in the past that led to the occurrence of such a large accumulation. SBI did not generate NPLs of more than Rs1 lakh crore in 12 months. As they say,Better late than never.’ The Asset Quality Review and the change in the RBI’s approach towards the recognition and handling of NPLs, as manifested in the February 2018 framework for the resolution of stressed assets (which was replaced by the June 2019 framework after the Hon’ble Supreme Court set aside the February 2018 framework) was bound to cause huge distress to the banking system and the economy, though the hope that both would eventually emerge stronger lingered on.
My impromptu remark during the earnings call after the March 2018 results was, `The year 2018 was a year of despair, 2019 is a year of hope, and 2020 will be a year of happens.’ This statement attracted huge media attention, and subsequently, all the efforts and energy of the bank management were directed towards achieving this goal.
The immediate step that was taken was the transfer of all the NPLs to the Stressed Assets Resolution Group and strengthening it through placement of most competent officers who had a profound knowledge of credit. For handling large corporates, it was important to build a consensus amongst lenders, for which the State Bank Bhawan at Nariman Point, Mumbai, became the hub of high-level meetings and coordinated action by the major lenders, including private sector banks, mainly ICICI Bank and Axis Bank and financial institutions like the Power Finance Corporation and REC Ltd. It was natural for every institution to be guided by self-interest, but all the lenders were willing to accommodate each other in the larger interest of the industry. Fortunately, the outcome of these efforts has been very positive for the industry, with notable success like those of Binani Cement, Essar Steel, Bhushan Steel, and Prayagraj Power and Ruchi Soya to name a few.