The shock arrest of Sudhir Kumar Jain, the chairman and managing director of Syndicate Bank, by the Central Bureau of Investigation (CBI) has exposed the rot in public sector banks. The number of bad loans at Syndicate Bank had quadrupled in the five years since 2008-09, yet regulatory authorities took no notice. It is only with Jain’s arrest on bribery charges that the spotlight has finally turned to his bank’s jump in non-performing assets (NPAs).

An NPA is a loan where the borrower fails to make an interest or principal payment for 90 days.

According to the Indian Express, the total number of loans at Syndicate Bank that turned into NPAs rose from 40,706 in March 2009 to 1,53,959 in March 2013.

While Jain held the position of CMD at the bank for just over a year before his arrest, the sharp rise in NPAs should have alerted regulators of the cosy relationship between the bank’s senior management and its corporate clients.

The CMDs of state-owned banks enjoy wide-ranging powers to sanction loans. The credit approval committee (CAC) that comprises the CMD, an executive director and two general managers, has the power to sanction loans of up to Rs 400 crore ($65.5 million) without having to go to the board of directors to seek approval.

Over this five-year period, there was a rise in corporate loans (above Rs 5 crore or $820,300) turning into bad loans at Syndicate Bank. While the number of such loans stood at 13 in 2008-09, it rose to 24 by the end of 2012-13 and the value of such loans quadrupled from Rs 174 crore ($28.6 million) in March 2009 to Rs 731 crore ($120 million) in March 2013.

Several public sector banks have witnessed a jump in their NPAs over the last five years, but Syndicate Bank was among the worst performers.

Jain is only the third top executive (executive director or above) to have been arrested while still in office.

He was arrested last Saturday for allegedly taking a bribe of Rs 50 lakh to increase the credit limits of two corporate entities, Prakash Industries and Bhushan Steel. The CBI said his arrest followed months of telephonic surveillance.

The bank’s stock fell 8 per cent when markets opened on Monday. The bank has assured all its stakeholders that its fundamentals continue to be robust and it was functioning normally.

RBI governor Raghuram Rajan said on Tuesday that the bribery allegation at Syndicate Bank throws up “governance” issues at some public sector banks. He, however, cautioned against “extrapolating” the incident to the entire public sector banking sector.