Towards the end of 2012, senior executives in many public sector banks (PSBs) increasingly spoke of a fear psychosis gripping the banking system paralysing the sector. The reason they cited wasn’t hard to understand. A series of investigations by central investigative agencies into the telecom, mining and real estate sectors had left every banker with the fear of getting prosecuted —even on business decisions they had taken in the past.
The context of investigations, back then, was primarily the alleged irregularities by the then government in awarding the second generation airwaves (2g) and coal resources. This scenario brought considerable uncertainty into the banking industry as most lenders had exposure to the companies and the change in the course of allocation of these resources came as a shock to them.
As a result of back-to-back investigations, most PSBs slowed down decision making whenever a large corporate loan proposal reached their table. This led to further slowing down of credit growth even to good borrowers.