News APP

NewsApp (Free)

Read news as it happens
Download NewsApp

Available on  gplay

This article was first published 9 years ago  » Business » Bribery, bad loans and India's nationalised banks

Bribery, bad loans and India's nationalised banks

By Shyamal Majumdar
August 15, 2014 08:16 IST
Get Rediff News in your Inbox:

The incidence of corruption cases can be checked to a large extent if the suggestions already available with RBI and the government are taken seriously, says Shyamal Majumdar.
eserve Bank of India (RBI) Governor Raghuram Rajan told ET Now last Wednesday that salaries of public sector bank executives need to be revised to bring them on a par with those of their peers at private banks. The comments made in the backdrop of the bribery case involving suspended Syndicate Bank Chairman S K Jain make sense in view of the widening compensation differences between the two, leading to skill differences, particularly for certain key and specialised positions, and a temptation to make money on the sly.

Consider the figures provided by the P J Nayak Committee report. In 2012-13, the average CEO monetary compensation for new private sector banks was Rs 3.21 crore (in addition to stock options, whose monetary value is dependent on the bank’s stock price); and for public sector banks, Rs 18.66 lakh. It would be stating the obvious to say that such differentials are unsustainable without a major adverse impact.

It’s not a surprise, therefore, that nationalised banks accounted for almost 90 per cent of the banking sector frauds of cases involving over Rs 50 crore (Rs 500 million), according to a study conducted by RBI last year. While it’s a fact that the number of frauds per million banking transactions is just about 0.4, the number is growing fast. And large value advance-related frauds are mainly concentrated in public sector banks.

That much of the problem comes from the government itself has been highlighted by the Nayak Committee, when it says that “many of the provisions in the Bank Nationalisation Acts are anachronistic and a powerful source of governance ills afflicting those banks. For instance, the Acts permit the government to form ‘schemes’ applicable to these banks, and thereby intervene in diverse areas such as banks’ capital structure, board composition, retirement of directors and reconstitution” and so on.

The report all adds that “in effect, this intrudes on both regulation (the domain of RBI) and on the law defining organisational behaviour (the domain of company law). The new Companies Act also imposes severe penalties on directors in the event of mis-governance, which are absent for the nationalised banks under the Nationalisation Acts”. That explains why Rajan also laid emphasis on the strengthening of bank boards.

Syndicate Bank’s Jain was the last in a series of alleged corruption cases involving top officials of government-run banks and the modus operandi has been the same: lend money to those who didn’t deserve it, or price loans lower than what they should have been, or give breathing time to errant borrowers. State Bank of India (SBI)’s deputy managing director Shyamal Acharya, of course, was given a clean chit by an internal panel of SBI after he came under a cloud over a particular loan. Acharya, who was asked to proceed on leave after the Central Bureau of Investigation registered a case against him in November last year, resumed work till his retirement in August this year.

Former Corporation Bank CMD Ramnath Pradeep faced Central Vigilance Commission charges over sanctioning loans to a few companies in contravention of regulations, extending a big-ticket loan to a tower construction firm that had already defaulted on payments to another state-controlled bank, and changing rules to appoint a consultant at the bank - a charge that Pradeep denied.

Though nothing much came out of these cases, former Indian Bank CMD M Gopalakrishnan was sentenced to one year in jail on charges that he had entered into a criminal conspiracy with a borrower and sanctioned secured overdraft with false documents as security in the name of various companies.

Such high-profile cases are not many. But that’s only a footnote in the full story.

In a speech delivered last year, former RBI Governor K C Chakrabarty hit the nail on the head when he raised the issue of lack of accountability. Quoting RBI’s analysis, Chakraborty said “the general trend is to include a large number of officials in the probe into corruption cases so that the investigation is both delayed and diluted. Even in instances where investigations are concluded, there is a tendency to hold only the junior level officials involved in post disbursement supervision and ignore the lapses on the part of higher officials who were involved in sanctioning of the advances, unless of course, the case becomes a high profile one or if some personal vengeance is involved.

Our experience is that the accountability examinations do not comment on lapses of sanctioning officials even while the fraudulent intentions of the borrower might have been overlooked by the sanctioning official sab initio,” he said. He added that “there are also considerable delays in reporting frauds to appropriate authorities, conducting investigation and fixing of accountability, which in effect leads to shielding of the main culprit while the blame is shifted to the junior level officials”.

Jain is not the only one and will not be the last one either in getting into murky deals. But the incidence of such corruption cases can be checked to a large extent if the suggestions already available with RBI and the government are taken seriously. They have been gathering dust due to a strange belief that these are just stray cases of individual greed and the system doesn’t need to be fixed as it’s not broke as yet.

Get Rediff News in your Inbox:
Shyamal Majumdar
Source: source

Moneywiz Live!