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| The ugly truth about our banks | | | Sandeep Bamzai
India's banking system is emasculated, and its underbelly lies exposed, imperilling the nation's financial system. The RBI Governor is trying to deal with this loathsome truth with candour but that has made him unpopular
A different kind of animal spirit has
been unleashed in the more or less static Indian economy. Actually, I need to paraphrase lethal carnivores who were hidden under the carpet and the bulge that was getting uglier day-by-day have been introduced into the system. It is to do with Reserve Bank of India Governor Raghuram Rajan's credit that this ugly contemptible truth has finally emerged, although the extent of the malaise is staggering. India's banking system is emasculated and its underbelly lies exposed imperilling the nation's financial system like never before. Arguably, Rajan is the first Governor who has dealt with this loathsome truth with candour. However, his verity has made him unpopular. The extent of the widespread malfeasance though boggles one's mind.
As the fourth quarter results of the public sector banks are announced, one views them with great dismay for the net losses registered - Punjab National Bank Rs5,370 crore, Bank of India Rs3,587 crore, Bank of Baroda Rs3,230 crore, Syndicate Bank Rs2,158 crore, IDBI Bank Rs1,736 crore, UCO Bank Rs1,715 crore, Central Bank Rs898 crore, Dena Bank Rs667 crore, Allahabad Bank Rs581 crore, Corporation Bank Rs510 crore - are scary. All told, 20 PSU banks have reported losses of Rs20,561 crore in their fourth quarter. Bank of India's bottom has fallen out, annual losses are Rs6,089 crore.
Last December, Rajan had given a clarion call when he said, "Given that banks have more powers we can now be a little more careful about recognition and the first step of that was to do away with for bearance starting April 1, but the next step is to make sure that what should be classified as A is classified as A and not B. So this is underway, and we hope that by March 2017 the clean-up will have been done."
But as we go beyond the apparent, we see a far deep rooted rot that is debilitating the system. Infirmities which lead to uneasiness over the systemic debility, leaving in its wake a trail of destruction. Take Syndicate Bank which has written off Rs882 crore in its fourth quarter results.
Reason the Central Bureau of Investigation registered a case in early March against New Delhi branch's then general manager Satish Kumar Goel, Jaipur regional office deputy general manager Sanjeev Kumar, Jaipur branch chief manager Deshraj Meena and assistant general managers of Malviya Nagar branch in New Delhi and Jaipur branch Adarsh Manchanda and Awdhesh Tiwari respectively. Other accused were chartered accountant Bharat Bamb, a resident of Udaipur, and three Jaipur residents identified as Shankar Khandelwal, Piyush Jain and Vineet Jain. Now these aren't bad loans, but a unique fraud where the perpetrators connived together resorting to discounting of fake cheques and fake inland bills against fake LIC policies and arranging over-draft limit against non-existent LIC policies. The level of trickery and fraudulence can be gauged by the fact that Syndicate Bank had to write off an astronomical Rs882 crore, which means that it will never be able to recover the monies.
Syndicate Bank management revealed that it wrote off Rs882.64 crore in the fourth quarter (the three months ended 31 March) because of fraud at its branches in Jaipur over the last four years. Four years where all firewalls and security protocols were breached consistently without so much as a by your leave and any alarm whatsoever across the bank's network tells you that while we shout from the rooftops about bad loans, human ingenuity continues to infringe the banking system with great pizazz. More than 350 accounts were opened with these branches in Jaipur and Udaipur and loans worth Rs2-2.5 crore each were availed using fake documents. The amounts were so 'small' that the bank's fraud management systems could not detect them is how the bank management papered over the matter. We are talking about a Rs882 crore write off in a single quarter. This is not the first instance of rampant corruption at Syndicate Bank. In August 2014, the then chairman and managing director SK Jain was arrested in a cash-for-loans scam where he was caught taking bribes for dispensing loans.
So, while we make a huge song and dance over NPAs and stressed assets, bank managements and top officials continue to enervate the banking system's innards, enfeebling it. How does the Government protect the interests of depositors, investors and shareholders? After all this is plain and simple greed. Human ingenuity knows no bounds, fail safe mechanisms and security protocols are violated with impunity. Take the Rs6,000 crore Bank of Baroda/HDFC Bank forex scam last year: The records show that the alleged 'exports' were sent to Afghanistan but invoices were generated by Hong Kong importers. It is not known as to who received them in Afghanistan and what the exports were linked to. Much before 59 accounts, which are under the scanner of the ED and the CBI, were opened in BoB, 13 accounts were opened in HDFC Bank during February-March 2015 to send money abroad. The accused floated shell companies in India and Hong Kong. The Indian companies exported overvalued products by generating fake bills and the Hong Kong companies submitted fake import bills to claim duty drawback. So simple and yet undetected!
While we talk about how bank chairmen in the past were pressurised by finance ministry officials into giving hefty loans to failing industrialists and businessmen, what has been done to combat these wilful transgressions made by greedy senior bank officials, I am convinced that the Government has no wherewithal and expertise to combat the phenomenon of human greed. Subversion on the surface is so simply crafted, its architecture blighting the system.
Ring fencing Indian banks is proving a challenge for the Government. As if all this jiggery pokery wasn't enough, beware the human mind of scoundrels and scallywags and their capacity for fraud, duplicity and chicanery is unparalleled. It is the Government's job, as custodian of our public sector banks, to create iron clad systems which check deceit, skulduggery and embezzlement. It has to strengthen its filters so that a moat is built around its systems to track and ensnare dubious transactions.
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