Those familiar with the functioning of Indian banks will hardly be surprised at the revelation that bribes were paid to facilitate corporate loans. The surprise, if any, is that the CBI has made some arrests, and that too at the top level. The “mediator” that paid bribes for corporate loans has been named, as also the beneficiary companies, mostly in the realty sector. The RBI has off and on cautioned banks against advancing loans to realty firms and contributing to the building of “asset bubbles”. Realty firms need huge cash flows to complete capital-intensive existing projects and build on land banks. Hence, they often engage middlemen to get loans. It is not yet clear whether the arrested officials gave any interest rate concessions or bent the rules to advance loans without collaterals or favoured firms otherwise ineligible for loans.
If banks in general and the RBI in particular simplify procedures, eliminate “go-betweens”, blacklist the wrong-doers and ensure stricter enforcement of the rules, irregularities in advancing individual or corporate loans can be minimised. The erring banks and firms will take a hit and will be justly de-rated in the stock markets, but the clean-up process, if taken to its logical end, can benefit loan takers in future. The Tribune