Panel at govt banks to approve bigger loans

Rules changed to ensure this after lenders turn cautious on credit disbursals, fearing sole responsibility for NPAs

The government has amended the rules to make the loan sanctioning mechanism transparent in public sector banks (PSBs). Lenders now have to set up a four-member committee to decide on sanctioning of loans above the branch manager’s purview.

Till now, such a process was only followed by State Bank of India. Bankers say even the top management at PSBs, such as the chairman and executive directors, will not have the exclusive power to sanction such loans. The Banking Companies (Acquisition and Transfer of Undertakings) Act was changed to enable this.

The move comes after bankers became extremely cautious in sanctioning loans, in the wake of rising defaults. There is mounting non-performing asset pressure, impacting profitability.

“Bank staff involved in credit decisions became hesitant to sanction loans as the incidence of these turning bad kept rising in the last few years,” said the chairman and managing director of a PSB. “As a result, if loan sanctioning decisions are taken through a joint mechanism, it will give more confidence to officials to take a decision.”

Earlier, the finance ministry had asked banks to form credit approval committees to expedite loan sanctions. For banks having business of more than Rs 3 lakh crore, loans up to Rs 400 crore would be vetted by such a committee. Loans beyond Rs 400 crore would go to a management committee (MC).

“The MC consists of board members and does not meet too frequently. The advantage of forming a credit approval committee is that this will be an internal department and can even meet every week if required,” said an executive of a public sector bank.

Till now, loans above Rs 100 crore were being referred to the MC, which meets once a month.

The credit approval committee consists of the chairman, executive directors and four general managers, one each from the credit, risk management, financial control and recovery departments.

For banks having less than Rs 3 lakh crore of total business, loans up to Rs 250 crore would be vetted by this committee. Such committees would also be set up by banks at the regional office level.