New Delhi, Mar 11 (PTI) Industry body Assocham today cautioned that overreaction by banks and the investigative agencies, in the backdrop of the PNB fraud, could hurt essential credit disbursement to the trade and industry and tamper growth expectations.Also Read - Highlights India vs New Zealand 3rd T20I Match : IND Win By 73 Runs, NZ Whitewashed 3-0

It also emphasised that all out efforts must be made by banks, regulators, government and India Inc to “limit the collateral damage from the alleged fraud in PNB”. Also Read - Highlights | India vs New Zealand 2nd T20I Match: IND Beat NZ By 7 Wickets, Clinch T20I Series

“Following unearthing of the alleged scams and the media headlines, the banks are becoming cautious while there is a perceived public pressure on the regulators to act tough,” Assocham Secretary General D S Rawat said in a statement. Also Read - Highlights IND vs NZ 1st T20I Match: Suryakumar Yadav's Fifty & Rishabh Pant's Gutsy Knock Guide India Home

Given the scale of the problem, the level of noise may be justified, but it could cause a huge loss of confidence, he added.

“So, it is time to show immense restraint and use the adverse situation as an opportunity to fix the systemic issues,” Rawat said.

The chamber pointed out that one can learn from the US’ experience of handling the global financial crisis of 2007-08, where the authorities worked at the root of their banking system and have put in place some robust risk mitigation and prudent system.

In the present Indian situation, while the debate on reducing government stake to below 50 per cent should be encouraged, some immediate steps should be taken to do the capacity building in the PSU banks as this will enable them to prevent, detect and act on frauds, Assocham said.

The industry body said given the technology disruption taking place and India’s ambitions to enhance digital footprint, it is “all the more important to put in place robust systems, which are well beyond compromise”.

The chamber also pointed that public sector banks — with full support from the government and the RBI — need to develop expertise in specific business verticals.

“Lending to infrastructure projects is not the same as lending for retail trade, transportation or operating in the bond market. A new approach is needed for technological and human resource upgrades,” Rawat said.

This is published unedited from the PTI feed.