IN a wider context, a Senate panel’s clearance of a bill seeking to amend the law governing banking companies reflects the general frustration at the way banks and other financial institutions discriminate against loan-seekers on the basis of their jobs or professions while making credit decisions. The proposed bill recommends imprisonment and fines for bank executives denying any borrower, including politicians, a banking service on the basis of their social or economic class. The panel has rightly pointed out that the refusal of credit and other banking services for any reason other than the creditworthiness of borrowers or other criteria prescribed by the State Bank amounts to a violation of the fundamental, constitutional rights of citizens.

But the proposed bill will not right the wrongs being done by the banks. Rather, the suggested punishments for bank executives will put needless pressure on them and hurt the quality of their credit decisions. In 2008, a Delhi court had slammed Indian banks for denying clean loans and credit cards to professionals such as lawyers and journalists on the basis of what in banking jargon is known as ‘negative profile’, even if they were of sound financial standing and fulfilled other criteria. The judge had called it an “act of corporate authoritarianism”, rejecting the defence plea that banks had the discretion to choose their customers. But no one in India felt the need to bring new laws or punish bank executives. The court had directed bankers to follow the central bank’s guidelines in this regard, and consider the “financial standing and creditworthiness” of the loan-seekers while making lending decisions. The same principle should be applied here as well, with the State Bank issuing instructions to banks to give their customers the reasons for the rejection of their applications in writing. Banks that are found to be violating the criteria laid down by the central bank or discriminating out of social or economic reasons should be penalised to ensure that everyone gets a fair deal.

Published in Dawn, February 20th, 2022