Bankers in a state of shock after former SBI chairman Chaudhuri's arrest

State Bank says deal on which Chaudhuri was arrested was done after he retired; ex-SBI chairman Rajnish Kumar calls arrest vendetta; pathetic, blasphemous say others

Bankers expressed dismay and alarm at the arrest of former State Bank of India (SBI) chairman Pratip Chaudhuri just days after the government moved to absolve bankers from business decisions gone wrong, even as the bank put out a statement saying the deal in which Chaudhuri was arrested had concluded after he retired. 

“It is a sorry state of affairs, perhaps a vendetta,” said former SBI chairman Rajnish Kumar. “The sale of non-performing assets (NPA) is not done by one person, but a due process is followed,” Kumar said.

Sunil Srivastava, former deputy managing director of SBI, termed the arrest as “absolutely pathetic”. “Is the system being gamed again by defaulters despite all efforts by Modi govt? Time for an overhaul of judicial processes to improve transparency and introduce accountability,” Srivastava tweeted.   

“It is blasphemy,” said a senior banker, requesting anonymity. “This is a case of judicial overreach. The finance ministry, the Indian Banks’ Association (IBA), and SBI must immediately challenge this in a higher court. Only investigative agencies and the special fraud investigation office (SFIO) have the authority to arrest a banker after due investigation,” said the banker.

The ‘Garh Rajwada’ hotel project in Jaisalmer was financed by SBI in 2007. With the key promoter passing away in April 2010, the account slipped into NPA in June that year, SBI said in its statement. After recovery attempts failed, the dues were assigned to an asset reconstruction company, Alchemist ARC, in March 2014 in accordance with a laid-down process. The borrower was also subjected to an insolvency process by the ARC, and the assets were acquired by a non-banking financial company (NBFC) in December 2017.  

Chaudhuri retired from the bank in September 2013 and joined Alchemist ARC after his retirement. The arrest pertains to those who were directors of the ARC in October 2014.   

The arrest comes within days of the finance ministry issuing norms for state-owned banks on the uniform staff accountability framework for NPA accounts over Rs 50 crore. A communique from the IBA said the framework, issued on October 29 and applicable from April 2022, protects bankers from bona fide business decisions gone wrong later. The bank staff won’t be held responsible for the decisions, other than cases of frauds, if the account turns bad. 

Earlier, in December 2019, Finance Minister Nirmala Sitharaman had assured bankers that the three ‘Cs’ — the Central Bureau of Investigation, Central Vigilance Commission, and Comptroller and Auditor General of India -- won’t harass them for bona fide business decisions. 

Bankers said they can’t take the assurances seriously now. “This is a further long nail in the coffin. Decision-making has already frozen in public sector banks and now nothing will move, except expressed orders of the government,” said another banker.   

Employees in SBI headquarters were shell shocked after the news of the arrest. While senior officials did not want to discuss much about the case, one could sense dismay in their conversations.   

One middle-level official with the bank said the police, with no understanding of how bank decisions are made, are having a free run in the issues of lending and stressed assets, chilling those involved in credit decisions.   

“Post-retirement, there is hardly any legal backing for employees and those facing cases many times face harassment. The employee concerned has to foot the bill for legal expenses, which is a huge burden,” said one of the bankers cited above.    

Another senior executive at the bank wondered if a local nexus between real estate and construction interests, in collusion with employees of various arms of the state government, was behind this action.  

“This development was unexpected. It is a setback for the morale of people in lending. Chaudhuri’s standing is high among bankers with a clean track record. Investigations, if any, could have happened in a civil framework for loan and stressed assets,” said a senior banker with another Mumbai-based public sector bank.