Every few months, our public sector banks (PSBs) are in the news. One kind of news is about their huge losses. Some Rs 5 billion here or Rs 10 billion there quarterly loss is the new normal. The second kind of news is when a major scam or an egregious case of bad lending stuns the nation. For instance, a Rs 50-billion scam where the high-profile promoter of Winsome Diamonds disappears after a carefully planned swindle or a Rs 127-billion scam where jeweller Nirav Modi
and his uncle Mehul Choksi
go absconding. A third kind of news is generated as a response to the first two — bank recapitalisation, change in recruitment process of top management or a change in the monitoring system and so on. Once the initial amazement, anger and discussion about all such news reports die down and the inevitable clamour for “reforms” ends, the PSBs
continue in their same old ways. If we had to hold someone accountable for the enormous and continuous loot of public money and pin responsibility on them, who should we really target
? In my view, it should be these three: Banks managements and RBI:
The massive bad loans reflect a breakdown of basic banking: Bank officials have lent money without adequate collateral, as part of their nexus with promoters. Remember, banking is one of the most regulated businesses in India. Worthies from the Reserve Bank of India (RBI) and the Ministry of Finance (MoF) grace every PSB board. Banks are subjected to dozens of audit and compliance norms: Concurrent audit, internal audit, statutory audit, and RBI audit.
According to reports, Punjab National Bank, which was robbed of more than Rs 127 billion with complete ease, also has a credit audit, risk-based internal audit, revenue audit, information systems audit, snap audit, segment audit, compliance audit, legal audit, and audit under the Foreign Exchange Management Act. But none of these stopped the frauds or the relentless rise of bad loans, because no banking or regulatory official is ever held accountable for them.
This group is certainly not interested in PSB reforms.
MoF bureaucracy: In India, change can also come through the bureaucracy — the traditional policymakers. In banking and finance, it is the Department of Financial Services (DFS) and is overseen by six secretaries, two additional secretaries, two economic advisors, and a deputy director general. Lok Ranjan is possibly the senior most of six joint secretaries.
His breathtakingly wide responsibility (abridged here) includes financial inclusion, business correspondents, mobile banking, e-governance, e-payments, point-of-sale & prepaid cards, district- and state-level bankers’ committee, lead bank scheme, direct benefit transfer, payment regulatory board, and expansion of banking network, etc. Mr Ranjan took charge in August 2017 and immediately became a director at Bank of Baroda. Finance is a specialised field requiring highly complex operations and DFS officers are anything but specialised. Mr Ranjan’s previous job was principal secretary in the tourism department of Tripura. Pankaj Jain, another bright joint secretary, is responsible for the Pradhan Mantri Mudra Yojana and Stand-up India. He was a director of Canara Bank and is on the board of IDBI Bank now — two other scam-ridden banks. Perhaps banking and financial talent is scarce in India and can only be found among the Indian Administrative Service; and so, he is holding the additional charge of India Infrastructure Finance Company Ltd. His previous job: Secretary with the Meghalaya government. Amit Agrawal, a third joint secretary, oversees banking operations and accounts, industrial relations, recovery, cell for board of directors for banks, core banking solution-related issues, computerisation of PSBs, cybersecurity. He was finance secretary of the Chhattisgarh government. Then there are joint secretaries for education loans and “Vidya Lakshmi portal”, the goods and services tax (GST) cell, regional rural banks, agriculture credit, pension reforms, and one for bad loans and centralised KYC (know your customer). These are all top minds who fly under the radar and do an honest day’s work, expanding their oversight but hardly making any difference to the only outcome that matters in democratic capitalism: Cheaper and easier finance for users, through more competition and greater efficiency among the financial sector players. Are they interested in PSB reforms?
Well, over the past two decades their work has expanded to fill the time available for its completion. And then more work has been found. But bank losses continued to swell rapidly. Politicians: They have the real power, because they alone can change the law. And yet, the deep rot in the PSBs
can be directly attributed to them for actions such as pressuring banks to sanction loans to weak corporate borrowers, to appointing top dubious bankers in top positions as quid pro quo. Are they interested in PSB reforms
at all? It would be laughable to think so. And so, the outcome of the current banking crisis will also have a depressing and familiar end: Endless debates on pros and cons of processes, systems, checks and balances, audits, whether the top management could have known, etc. All this is quite useless because those who are debating can effect no change. And those who can change things have deep vested interest in preserving the status quo.