The finance ministry has issued a new directive in its guidelines on "takeover of loans" by public sector banks. According to the new directive, the PSBs have been prohibited from "take over of loan accounts" from other PSBs in which their present chairman and managing director (CMD) or executive director (ED) were previously employed.
The ministry issued a letter to this effect, stating that "No case should be taken over by bank from any bank where its ED or CMD has worked earlier." However, in cases where banks want to take over loan accounts from banks whrere their top management has earlier worked, the banks have to forward such a proposal in front of its board and "it needs to be justified".
The finance ministry explained the rationale behind this ban and indicated that take over of loans from other banks lead to unfair and unhealthy banking practices and may create "bad loans". The ministry also mentioned that there have been cases where an account has turned sick shortly following a bank poaching it from another bank.
So, the ministry said in its note that these kinds of "takeover of loans should be done only on merit basis". It has banned the banks from granting any concession to the borrower while taking over a loan from another bank.