by Y.P. Singh
It is well known that the banking system in India is deposit-oriented in contrast to the capital-driven banking system in the developed world. More than 80 per cent of the deposits in the banks belong to the common man. Public sector banks hold huge financial resources in terms of deposits employing very small amount of capital (approximately Rs 20,000 crores). This is why the corporates and industrialists want the privatisation of the public sector banks.
While public sector banks are passing through a very critical stage due to huge non-performing assets, various scams in different banks, engineered by the various industrial and business houses, is multiplying the crisis. More than 95-97 per cent of the frauds in PSBs belong to credit frauds and hardly three-four per cent of the frauds are operational frauds. This speaks well about the integrity and sincerity of the workforce employed in the banks as the credit decisions involve prudent utilisation of the discretionary authorities delegated to branch heads and various committees at controlling offices for sanctioning loans to the eligible borrowers.
In the present case of Nirav Modi and his accomplices, the actions being taken by the government and regulatory authorities are raising a few questions:
1. The Department of Banking Supervision of the RBI is supposed to supervise the transactions of the banks from various perspectives for which the banks submit daily, weekly, fortnightly, monthly, quarterly, half-yearly and yearly reports to the RBI in the pre-designed formats as per the RBI requirements. So it may be presumed that the transactions in this case have also been reported to the RBI and hence the question that arises is: What is the role of the RBI as a regulator while fraudsters are exploiting SWIFT and LOU for several years?
2. The CBI has identified six-to-seven low-ranking staff members responsible for such a huge scam and if they are involved then they must be punished. But we know that such a big scam persisting for such a long period cannot take place without the involvement of the higher authorities. Moreover, in the present-day technical platform, lower-ranking staff cannot act independently and complete a banking transaction without intervention of the higher authorities. The monitoring role of the respective controlling offices and Head Office of the concerned banks in this regard is also under question. Hence, why should prompt actions not be taken against the top officials of the bank, particularly the CEO, MD, GM Credit of the PNB and officials of the RBI?
3. What has been the role of the government officials, RBI nominees on the boards of public sector banks, in regard to corporate governance? It should be mentioned that after Narendra Modi came to power, the system of appointing workmen and officer directors in the board has been discontinued, and only government nominees are now members of the board.
Moreover, the government has constituted the Banking Board Bureau to supervise the corporate governance of the banks and it is being headed by Ex-CAG Vinod Rai. What improvements in corporate governance of the government-owned banks have been imparted by the BBB?
The corporates in collusion with political leaders and top officials of the banks are exploiting the financial resources of the banking system. While the retail borrowers are chased for recovery and farmers are forced to commit suicide out of fear of their inability to repay the bank loans, persons like Nirav Modi are allowed to comfortably cross the national boundary and take shelter in some other country with public money. In our Allahabad Bank, trade unions have been raising the issue of bad loans for the last 30 years. In the 1990s there had been huge campaigns in Kolkata at the head office of the Allahabad Bank for better customer service and the health of the bank under the leadership of Sri Basudeb Ganguly. There were agitations in some other banks too.
If the corporates and financial houses are so efficient, then how are the banks suffering due to huge NPAs in these sectors? The AIBEA has rightly raised the question that since 1948 to 2008 more than 700 private banks have been liquidated but none of the public sector banks has been liquidated so far.
I had been Workman Director on the Board of the Allahabad Bank from August 29, 2013 to August 28, 2016. During my tenure no proposal in regard to the enhancement of the credit limit of Gitanjali Gem was placed for consideration in the Board. Hence, the issues raised by Sri Dinesh Dubey in regard to the proposal of Gitanjali Gem, his dissent note, communication with the Ministry and his resignation are issues of verification.
The ownership of public sector banks is not responsible for the present condition of the banks; rather the burgeoning amount of NPAs and financial frauds are causing the damage. Good governance, proper control and stringent recovery measures are required to improve the present scenario in the PSBs.
The present condition of the PSBs also raises a question on the role of the auditors (both statutory and concurrent). Banks are ridden with regulatory risks and auditory failures. The immediate requirement is to have a proper audit system, credit appraisal system and a very robust risk management system to strengthen the banks' financial condition and to restrict the avaricious crony capitalists to loot the precious financial resources which are causing reputational risks to the banks.
A retired employee of the Allahabad Bank, the author may be contacted at ypsran[at]gmail.com