Upset bankers want insurance cover after Bank of Maharashtra CMD arrests

After the arrest of the current and former Chairmen and Managing Directors of Bank of Maharashtra in an alleged loan fraud case involving DSK Group, by the Economic Offences Wing of Pune Police, upset bankers want insurance cover so that they can bear legal expenses, while in service and after retirement.

Bankers have also slammed the government for allowing state police to arrest the CMD of a bank without having proper proof of wrongdoing in hand. They feel that the loan disbursement in question by the CMD of Bank of Maharashtra and other senior officials had been done keeping the RBI guidelines in view and there was no lapse in sanctioning of the loan as it had been done through a consortium of lenders.

In a meeting held by Indian Banks’ Association (IBA) in Mumbai on June 22, the bankers in a unison came to the conclusion that an insurance cover was a must for them keeping in view the constantly increasing cases of arrest by the enforcement agencies like Enforcement Directorate (ED), Central Bureau of Investigation (CBI) and even local state police and the huge legal costs involved into that. This was revealed by VG Kannan, chief executive of IBA, after the meeting which was also attended by the heads of state-run, private sector and foreign lenders as well.

The bankers sitting at higher echelons would want to opt for Directors & Officers insurance (D&O). This kind of cover is bought by all the private sector and foreign lenders. ICICI Bank takes the maximum D&O cover for its senior level officials. However, no such cover is taken at state-run banks, as the government doesn’t pay for the same. And there is no word yet from the government on this front.

This issue has come to the fore in the aftermath of the Punjab National Bank (PNB) ₹13,000-crore fraud, which resulted in the arrest of a number of bank officials.

According to Kannan, Bank of Maharashtra’s total loan exposure in the DSK Group case was only ₹600 crore as the loan had been extended to the real estate developer by a consortium of bankers. “We fail to understand how state police can take action in this case,” Kannan said. He further added that the loan disbursement was as per RBI guidelines and hence banks are worried as genuine decisions are being questioned by the government.

Kannan made it clear that all the bankers expressed anguish and concern at the way the government at the Centre and in Maharashtra as well was dealing with bankers.

“We want an authority whereby such agencies should take permission before taking such action,” he said, adding “such actions by the government will discourage lending.”

Kannan said that such default issues are more due to downturn in economy, rather than any wrongdoing by the bankers.