The chairman's Friday deadline
Anjali is a credit analyst at a small finance bank. Sundaram Textiles, a weaving unit with turnover of ₹22 crore, has applied for a ₹7.5 crore term loan plus a ₹2 crore working capital limit to add 24 looms. Her appraisal shows a DSCR of 1.08 computed on projected figures; two of the three 'confirmed' export orders are unsigned email printouts; the borrower's GST returns show Q3 turnover 30% below the projection the branch used; and 60% of the collateral is a plot valued at ₹4.1 crore by a valuer whose report is eight months old, against a second opinion of ₹2.6 crore. The promoter is a district panchayat member from the ruling party. The bank's chairman calls Anjali directly: 'The cluster is on the state's priority list; sanction before Friday, and if you have doubts, put them in a note I will handle.' The borrower's chartered accountant offers to 'take care of' her site-visit travel and a two-night stay at a resort. The branch head says the file will 'look bad for the bank' if she records a decline.
1. Sort the facts into credit concerns, control concerns and ethical concerns, and identify which facts are weak credit risk rather than misconduct.
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Credit concerns (legitimate business risk, which may be accepted, priced or declined): a DSCR of 1.08 on a new 24-loom expansion leaves almost no cushion; the promoter's margin contribution and demand assumptions are thin; the sector is cyclical. Declining on these grounds would be a commercial judgement, not an ethical failure.
Control concerns (breach of appraisal standards, which would misstate the bank's exposure): relying on an eight-month-old valuation for 60% of the collateral while ignoring a second opinion that is 37% lower; accepting unsigned order printouts as 'confirmed'; using projections that contradict the borrower's own GST filings. Any of these, if it reaches the sanction note unchallenged, misinforms the decision-maker.
Ethical concerns (misconduct): the chairman's call couples a political priority to a deadline and invites Anjali to 'put doubts in a note I will handle' - which means record the doubt while the decision proceeds, and carry the blame later. The CA's offer of travel and a resort stay is an inducement, not hospitality. The branch head's 'will look bad for the bank' is pressure to suppress findings.
Why the distinction matters: the loan might legitimately be sanctioned on tighter terms - smaller amount, additional collateral, signed orders, higher promoter contribution. The misconduct is not the lending; it is the pressure to hide the weakness and the acceptance of a benefit while deciding.
2. How should Anjali handle the CA's offer, the chairman's call and the appraisal note? State what she should refuse, what she should put in writing, and to whom.
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The CA's offer: refuse in writing and keep the email. She should not accept even the travel component, because it comes from the borrower's side and creates an obligation precisely when her judgement is being tested. Due diligence is paid for by the bank.
The chairman's call: acknowledge it courteously, commit only to completing the appraisal, and confirm the conversation by email - 'As discussed, I will complete the appraisal by Friday and forward my findings to the Credit Committee.' No promise of a sanction, no agreement to keep doubts out of the file.
The note: set out every finding - both valuations with the gap, the unsigned orders, the GST variance, and the DSCR sensitivity showing the ratio falling below 1.0 at last year's actual turnover. Recommend either specific conditions or a decline, with reasons. An appraisal that omits these is not a professional document.
Escalation: send it to the Head of Credit and Risk. If she is asked to soften or delete a finding, escalate to the Audit Committee Chairman or use the whistle-blower channel, and say in writing that she has done so.
Key point: a sanctioning authority may override an analyst, but only on the record and with a name attached. 'I will handle it' removes the doubt from the decision-maker's view, which is exactly what the appraisal exists to prevent.
3. Two years later the account is stressed and the branch head proposes a ₹1 crore ad-hoc overdraft to keep it standard until a government order comes through. Discuss the ethics of this proposal and the personal exposure of the officers involved.
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What this is: evergreening. Fresh credit is granted to a borrower under stress so that the account does not have to be classified as a non-performing asset. The loan does not become healthier; only the classification does.
Ethical failures
- Misrepresentation to depositors, shareholders and the regulator. The balance sheet reports an asset quality that does not exist, and provisions are understated - a transfer of risk to people who cannot see it.
- The 'help the borrower survive' rationalisation collapses once the recovery assessment is speculative; hope is not a security.
- Institutionalised target pressure. The same incentive that produced the sanction now produces the concealment; the pattern, not the single decision, is the governance failure.
Personal exposure of the officers: recommending and sanctioning officers can be proceeded against under the bank's staff accountability framework; a false document or diversion of funds would convert the matter into a fraud for classification and reporting; any personal benefit would make it criminal. 'The branch head proposed it' does not shield the sanctioning officer.
What the officer should do: refuse to recommend the overdraft, record the reason in the file, escalate to Risk and the Audit Committee, and ensure her dissent is dated and signed. If the decision is taken above her, the written dissent and a whistle-blower report are both her ethical duty and her protection.