Overreaction By Banks May Cause Huge Loss, Says Assocham Over PNB Fraud

| March 11 , 2018 , 18:58 IST

The Associated Chambers of Commerce and Industry of India (Assocham) on Saturday cautioned that overreaction by banks and the investigative agencies in the backdrop of the PNB fraud could damage the supply of essential credit for trade and industry.

The industry chamber emphasised that all efforts must be made by banks, regulators, government and India Inc to "limit the collateral damage from the alleged fraud in PNB".

"Following the unearthing of the alleged scams and the media headlines, the banks are becoming cautious while there is a perceived public pressure on the regulators to act tough," said Assocham Secretary General D S Rawat.

Given the scale of the problem, the level of noise may be justified, but it could cause a huge loss of confidence, he added.

"So, it is time to show immense restraint and use the adverse situation as an opportunity to fix the systemic issues," Rawat said.

The chamber said: “We can learn a lot from the US experience of handling the global financial crisis of 2007-08. The US authorities worked at the root of their banking system and have put in place some robust risk mitigation and prudent system" 

In the present Indian situation, while the debate on reducing government stake to below 50 percent should be encouraged, some immediate steps should be taken to do the capacity building in the PSU banks as this will enable them to prevent, detect and act on frauds, Assocham said.

Also ReadASSOCHAM Asks Govt To Cut Down Stakes In Banks To Below 50%

The chamber also pointed that public sector banks with full support from the government and the RBI, need to develop expertise in specific business verticals.

"Lending to infrastructure projects is not the same as lending for retail trade, transportation or operating in the bond market. A new approach is needed for technological and human resource upgrades," Rawat said.