“Finance Ministry sets fifteen days deadline for Public Sector Banks (PSBs) to come out with ‘preemptive’ action plan to combat rising operational and technical risks and assign clear accountability to senior functionaries.” (THI, Feb., 28, 2018.)
“It is time to reverse bank nationalisation. PSB problems cannot be cured with capital alone.” (THI Feb.27, 2018.)
“STOP THE BLAME GAME-LET RBI & FINANCE MINISTRY OWN RESPONSIBILITY” This warning bell was rung by a former Senior functionary of the Reserve Bank of India (RBI) few days after Vijaya Mallya left India on March, 2, 2016.
Leave alone owing responsibilities or action being taken, it was neither thought nor talked about. Much is talked and written about the scams in the Banking sector, RBI, Finance Ministry Central Vigilance Commission (CVC) and others only after the Nirav Modi Scam surfaced in Punjab National Bank. (PNB.)
Taking advantage of loopholes in the system, there were, undeclared scams like Harshad Mehta, Ketan Parekh, and any number of Non Performing assets. (NPA) –glorified term for defaulters/ Scams. What happened to Supervision and Audit? Why RBI failed in supervision? Is it because RBI has been busy with other things like demonetisation? It is counting the notes ever after 17 months! Has RBI lost its autonomy?
In what way the Chief Economic Advisor has improved the economy? Instead of better banking, better reporting, better supervision and better technology to strengthen the system, he is talking about Privatisation? Does he want to handover the Banks to the Corporates who have been looting them, so that they can loot more? Is the JAN DHAN scheme the brain child of the same Economic Adviser? If so, success or failure would it have been possible to venture without the PSBs? Is Privatisation a Gift by the Govt of India to its people, on the eve of the Golden Jubilee Celebrations of the Bank Nationalisation? (July, 19, 1969 – July, 19, 2019); one of the most important event in the Economic History of India?
Despite a sticky systemic NPA issue with PSB for five years, we have had no run on a bank, no stress in the money markets and limited impact on growth. While there are many reasons for this, a big reason has been the state ownership of the banking system. It meant that the banks’ liabilities have implicit sovereign guarantee, which maintained confidence of the markets in the banking system.
The country is struggling with mounting unemployment; no new employment generating programme. The Banks have money but they are scared of lending. They are investing the funds in safe bonds where they are losing interest. Net result is that the Economy is not growing.
What is needed is to have a relook at the policies. It is high time to redirect credit towards Agriculture, Horticulture, Food Processing, small and cottage industries which will increase employment. It is pertinent to quote here the Banking thespians Dr.T.M.A.Pai, T.A.Pai, and K.K.Pai, all late chairmen of Syndicate Bank) and K.S.N.Adiga, late chairman of Karnataka Bank Ltd. Quoting statistics, they used to say: “Ours is a big bank for a small man; petty traders, middle class restaurants, cottage and small scale Industries, agriculturists, etc. So our NPA is negligible. They are honest and sincere. Their conscience pricks if they do not repay the debts.” To deposit and purchase a DD or issue a cheque, for more than 50,000, a small man is expected to produce his Aadhar and Pan. So a big man prefers SWISS Bank.
11643 borrowers in the country have availed 38% of the total loans given by Banking Sector as on March 2016. Just 12 NPA A/cs have an outstanding of Rs.2,50,000 Cr. 84% of the NPAs belong to Corporates. Every year banks are writing off thousands of crores for this corporates which is the biggest scam. FICCI and Assocham should ask their members to be honest and repay the loans instead of demanding privatisation. RBI is not willing to publish the list of NPA borrowers. The Govt may announce a Financial Emergency and handover Banks to the Corporates. This is dangerous for the very existence of the Democracy itself.
What is needed is reversal of the Economic policies, credit policies and NPA norms to bring in transparency. Anything becomes bigger or greater when it flows from above. E.g. Originally small ponds, flow down and become the Ganga, the Yamuna, the Godavari, Krishna, the Kaveri and other great Rivers, they are. Rather than fixing accountability from the top why 18000 transfer orders were issued in a hurry? The CVC guideline can be implemented in a phased manner. It could have been implemented after annual closing. Who is responsible for the mid academic disruptions to the education of children of the employees?
Why the Prime Minister takes with him the businessman on foreign tours who are known for misusing the system? Why the same sets of businessmen get contracts abroad? Why these businessmen are show cased abroad and why they are selected by the PMO & Finance Ministry instead of Industry Associations which was the practice earlier? Three important steps are needed immediately to save the banking sector and the economy.
One: Seek impounding the Passports and publish the names of defaulters of the Banks, so that they don’t run away like Vijay Mallaya, Jatin Mehta, Nirav Modi and Mehul Choksi.
Two: Have a relook at the NPA norms. Why all accounts which have a default of 30 days be declared as NPA? Why not look at the reasons, scope for recovery, security etc?
Three: Appoint Officer Directors, Employee Directors and Nominee Directors immediately and allow them to play a watchdog role. Remove RBI Executives and Finance Ministry Officials from the Boards of Banks as they are Supervisors and they can’t supervise themselves.
Burning the house is not the solution to eradicate the Mouse nuisance. Some houses are burnt. At least, now dig the well. It may be useful to put off the next fire accident. It’s time for a wake up call.
*writer is former president of Andhra Pradesh Hoteliers’ Association