The arrest of former SBI chief Pratip Chaudhuri may prevent bankers from making any risky decisions, say experts

• Pratip Chaudhuri was arrested by Rajasthan Police on Sunday (October 31) from his residence in Delhi.
• The arrest was made in connection with an alleged sale of a non-performing asset, Hotel Gaudavan, to Alchemist ARC at a low value.
• SBI, as well as his predecessor Rajnish Kumar, who took over as SBI chairperson in 2017, have come out in support of Chaudhuri calling his arrest wrong.

The arrest of former State Bank of India (SBI) chairperson Pratip Chaudhuri will make banks risk-averse, World Bank’s former executive director CM Vasudev told Business Insider.

Vasudev is a retired Indian Administrative Service (IAS) officer, who has served as the finance secretary of the Indian government and as non- of executive chairperson HDFC bank.

“Public sector banks as it is are very risk-averse and this type of decision will make them even more risk-averse,” Vasudev said, adding that this will deter bankers to not make such crucial decisions and play safe.

He explained that banks are the real intermediaries who write finances to the “real sector” of the economy and if the banks become risk-averse, then there is no financing for new ventures. “If such decisions are made criminally liable for individual decision makers, it is going to have a very adverse impact on the economy,” he added.

Chaudhuri was arrested by Rajasthan Police on Sunday (October 31) from his residence in Delhi in connection with an alleged sale of a non-performing asset (NPA) — Hotel Gaudavan — to Alchemist ARC at a low value in 2014.

The arrest was made on the basis of a protest petition filed by former directors of Hotel Gaudavan and he has been sent to judicial custody for 14 days. State Bank of India (SBI), as well as Chaudhuri’s predecessor Rajnish Kumar, who took over as SBI chairperson in 2017, have come out in support of Chaudhuri calling his arrest wrong.

“This seems to be a case of highly motivated, high-handed action. This seems to be an error of judgment. There is a due process and set of rules laid out by the RBI for the sale of assets to ARCs [asset reconstruction companies]. Where is the corruption here?” Kumar said in an interaction with Moneycontrol.

SBI has shared a detailed statement, highlighting the facts of the matter. Interestingly, SBI wasn’t even made party to this case even though the alleged “scam” happened while Chaudhuri was serving as the chairperson of this bank.

“SBI would like to reiterate that all due processes were followed while making the said sale to ARC. The bank has already offered its cooperation to the law enforcement and judicial authorities and will provide further information, if any, that may be called for from their side," the bank said, adding that the sale to Alchemist ARC was done through a laid-down process.

Abizer Diwanji, partner and national lead of financial services at EY, told Business Insider that the arrest of Chaudhuri was wrong, but the banking community needs to be “cautious that when they sell any asset they should not only aim to recover their loan amount, but get a fair value out of it.”

The loan to Gaudavan Group was ₹24 crore, but the value of the properties were ₹200 crore. SBI, however, sold the assets to Alchemist ARC for ₹ 24 crore to recover their loans.

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