Finance Ministry has started a dangerous trend of muzzling the voice of rating agencies and bank heads

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Finance Ministry has started a dangerous trend of muzzling the voice of rating agencies and bank heads

Rajesh Goyal

In last few days we have seen news items which are disturbing as these indicate a direct attack on the voices of those (like rating agency) whose job is to bring to fore the forthcoming dangers or the risks they perceive for the financial institutions. Even Head of the largest Bank in India has not been spared and is being portrayed as a villain. It is a really a dangerous trend.

The finance ministry on 20th October, 2011 lambasted ratings agency CRISIL for "spreading panic" and criticized Moody's move to downgrade State Bank of India, saying the move lacked transparency. Mr DK Mittal, Finance Services Secretary, told reporters that we strongly dislike this type of comment to destabilize the banking system. With due respect to ratings agencies, we know their credibility. Also criticizing Moody's for downgrading SBI by a notch to D+, Mittal said ratings agencies often used different standards for Indian and foreign banks. "When you downgrade SBI, look at a similarly placed bank (abroad). The bank is owned by the government, it is from a country where GDP is still growing close to 8%. It is reported that Mr Mittal on Thursday said he would take up the issue with Crisil MD & CEO Rupa Kudva, while the government was consulting with Moody's so that a similar incident did not happen again.

It appears the memory of our Honourable FM and his team is too short. It was as late as 2008 that the whole world was blaming the rating agencies for the worst ever financial crisis which triggered in US owing to sub-prime lending. All and sundry put squarely the blame on these rating agencies who were charged that they failed to tell the world about the risks in such lending. Now in India, the senior most and most seasoned politician, honourable FM is attacking the rating agency for downgrading SBI.

Mr Mittal is boosting that SBI is owned by government, but at the same time he is forgetting that government is time and again delaying and avoding to provide sufficient capital to keep the CAR as per international requirements. The GOI is in a dilemma as to whether they should dilute their stake in PSU banks. It is finding it difficult to provide the necessary capital in view of the set backs due to various scams unearthered in recent months.

Last last week it was reported that a finance ministry official said ministry had felt that instead of focusing on improving its operational performance, the SBI management was using the recent credit rating downgrade by rating agency Moody's, as an opportunity to wrest more funds for itself from the government. The government owns a 59% stake in SBI.

It appears that Finance Ministry is bent upon putting undue pressure on PSU bank top management to fall in line and do not disclose all the NPAs as it will otherwise show the Indian banking in bad light.

There is an urgent need that instead of blaming the rating agencies and bank heads, the Finance Minister and his team concentrate on rooting out the corruption and political interferences in the sanction of the loans. Auditors should be given free hand and NPA classification should be system driven and RBI should not allow any further time extension to suppress such bad loans under one pretext or the other.

However, the recent statements by Finance ministry officials do not augur well for the health of the Indian banking industry and staff at the senior and middle level management will be under tremendous pressure to toe the line drawn recently by finance ministry officials.