Central Vigilance Commission is the most powerful government body to act as anti-corruption watchdog. CVC has examined transactions where public sector banks have sold loans to asset reconstruction companies. Following the examination, CVC concluded that some of loan sales were at prices indicative of corruption. Consequently, government has initiated action against some bank executives. CVC’s role is to combat corruption and no one can have a problem with that. But recent economic history suggests that it is pertinent to ask if CVC is adequately equipped in terms of understanding the financial market when it recommends action against officials.
A foundation of the bankruptcy legislation is that the longer bad loan problems fester, the greater is the depreciation in the value of assets. Hence there are clear timelines to finish the process. Two, firms have varying skills which is why a market for bad loans exists. These factors also serve as catalysts for transactions outside the bankruptcy framework. If public sector banks are unable to use them effectively it’s because from their executives’ point of view, there’s less risk of being accused of corruption when decisions are kicked down the road.
Government needs to exit the banking industry as its anti-corruption and governance frameworks are not in sync with commercial decision making. The continuing bad debt problem, juxtaposed with the recent CVC exercise, shows that the next government must exit banking to boost the economy.
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