Bank Frauds: Time To Put RBI in the Crosshairs
The Reserve Bank of India (RBI), as a banking regulator, is obliged to maintain the stability of the banking system and to ensure that it does nothing to engender a run on the banks through knee-jerk actions. In India, this has been interpreted to allow RBI to enjoy complete lack of accountability to the public, until its failure to initiate action borders on criminal negligence. 
 
What is worse, its policy of forbearance has led to banks operating like a cabal that has captured the regulator through multiple cosy relationships. The victims are we, the people. We are affected through increasing cost of services (to fund the losses due to bad loans), the regular failure of cooperative banks (failed supervision) and disruption caused by drastic action following every scam (failure of leasing and finance companies in the 1990s which hurt thousands of fixed deposit-holders).
 
And, yet, RBI remains comfortably protected in its ivory tower. It is not questioned for its failures (failed supervision of National Housing Bank, Global Trust Bank, cooperative banks and overseas corporate bodies). All these are dwarfed by the criminal neglect of the gigantic bad loan problem, which has been ignored and buried by three successive governors, even after the bank unions had begun to agitate about the problem and warn about the consequences. Individual officials have never been questioned for their inaction in half a century. 
 
Can this continue? At a time when the pressure to privatise public sector banks (PSBs) is mounting and the government has introduced a Bill to use depositors’ and shareholders’ money to recapitalise banks (Financial Resolution and Deposit Insurance Bill 2017), it is imperative that we demand transparency and accountability at the supervisory level as well. 
 
Plenty of individuals have been fighting lonely battles to shine the light on RBI’s inspection, supervision and redress mechanism; but, policy-makers are unmoved, even though bad loan figures are already mind-numbing.
 
Consider these. On 6th March, finance minister (FM)Arun Jaitely told the Rajya Sabha that loans worth Rs81,683 crore were written-off by PSBs in 2016-17 alone. While the FM claimed that these technical write-offs are for tax benefit and capital optimisation (and borrowers continue to be liable for repayment), this is mere eyewash. 
 
It is abundantly clear that recovery from loans written off, in the biggest cases that are now being sold under bankruptcy law provisions, is less than 20%. The losses are real and will eventually be paid by the exchequer. In fact, Dr KC Chakrabarty, former deputy governor of RBI, has repeatedly called such write-offs a massive scam.
 
These write-offs have burgeoned to unsustainable highs and are still mounting. Check out the third quarter results posted by six leading PSBs. Corporation Bank announced a stand-alone net loss of Rs1,240 crore (against a net profit of Rs159 crore in the previous comparative period); Central Bank of India’s losses increased to Rs1,664 crore; the giant State Bank of India reported a loss of Rs2,416 crore (its bad loans are a massive Rs1.99 lakh crore); Syndicate Bank’s loss was Rs870 crore, United Commercial Bank’s was Rs1,016 crore and Andhra Bank’s Rs532 crore. 
 
The losses are covered by the public exchequer through frequent recapitalisation of banks. This essentially means that the poorest Indians, who have no food to eat, are being deprived because taxpayers’ money is funding the loot by our biggest industrialists. The government has already announced a Rs211-lakh crore recapitalisation package for PSBs over a two-year period; but experts believe that this figure would eventually double. The Nirav Modi-Geetanjali and Rotomac scandal alone will add over Rs20,000 crore to the estimated Rs52,717 crore lost by banks to financial frauds in the five financial years from April 2013. 
 
Public anger over the ease with which businessmen have defrauded banks and fled India, while flaunting dizzyingly lavish lifestyles is extremely high. It is also clear that the government was clueless about the source of the loot, when it disrupted the economy with a painful demonetisation programme which yielded zero results. Here, too, the government is busy arresting junior officials, without attempting to fix the lax and non-transparent regulation, inspection and supervision structure. This structure has systematically thwarted every attempt by individuals to blow the whistle on mounting frauds. RBI ought to have been warning the government, instead of going along with an ill-planned demonetisation exercise that tied up precious resources and disrupted operations. Let me cite just three examples of specific whistle-blowing that were ignored. 
 
  • The chief vigilance officer of Punjab National Bank (PNB) had emailed RBI deputy governor SS Mundra and the Central Vigilance Commission (CVC) seeking a special investigation of the Brady House branch of PNB where the Nirav Modi scam was hatched. It was ignored.
  •  ZB Inamdar, a senior manager at Bombay Mercantile Cooperative Bank, has filed a public interest litigation (PIL), after a decade-long attempt to get RBI to act on detailed and specific complaints of large-scale corruption by the management. The Bank is now on the verge of collapse and Mr Inamdar was systematically victimised.
  • In July 2012, a Bank of Maharashtra (BoM) whistleblower, Devidas Tuljapurkar, raised questions about a Rs150-crore loan sanctioned to Vijay Mallya. He said, the credit approval committee headed by the chairman had altered all key sanction terms, including the loan amount, interest rate and security. Instead of investigating the complaint, RBI   forwarded it to the Bank in a manner that exposed the whistleblower who was then threatened with dismissal. It was only media coverage that forced the Bank to step back. It also ensured that loan exposure to Mr Mallya, which could have touched Rs1,000 crore, remained in check. Ironically enough, like PNB, BoM bagged the best-bank award at the prestigious BANCON that year.
 
The Corporation Bank officers’ union has long played the role of a strong whistleblower; but it was, eventually, defeated by government inaction and the Bank is now making huge losses. Even before the Nirav Modi scam erupted, the union newsletter had highlighted the sharp increase in bank frauds.
 
RBI’s failure to act on these complaints is particularly egregious, since it ignored many specific warnings. Moreover, it had framed a detailed process for reporting wrongdoing under the Protected Disclosures Scheme for private sector and foreign banks. PSBs are already under the CVC. This is in line with a Supreme Court order that top officers of private banks are also public servants and subject to the Prevention of Corruption Act and, hence, subject to CVC scrutiny.
 
Worse, it has used legal firepower to defy orders of the Central Information Commission (CIC) and the Supreme Court to release information related bank fraud, defaults and findings of inspection reports as well as action taken. The Securities and Exchange Board of India’s (SEBI) attempt to force immediate disclosure of defaults has been stymied by banks, apparently with support from the finance ministry and RBI. But what happens when the regulator refuses to act on complaints?  
 
It smacks of regulatory capture. This is already evident from the RBI’s silence over mis-selling of insurance, mutual funds and wealth management products, despite intense pressure from consumer organisations demanding action. In February, the Caravan magazine published an anonymous letter by a civil servant about how KMPG, a consulting major, was able to capture significant assignments by hiring children and relatives of government bureaucrats. A similar investigation into the progeny and relatives of RBI officials employed with banks and other regulated entities will reveal startling information. Is it any wonder that even the banking ombudsman has a pathetic record of redress? 
 
Bank privatisation is not the golden answer to the banking mess. This is because, while businessmen are busy cheating PSBs, private banks are busy cheating retail investors with rampant mis-selling of products and usurious charges. Putting the savings of the entire nation in the hands of private banks will create another set of problems. Interestingly, both these issues have the same roots: lax and corrupt banking supervision. When will the government put RBI in its crosshairs and launch a long overdue clean-up? 
Comments
Sudhir Jatar
4 years ago
To catch the junior-most for a fraud is the tradition in our governments. We are seeing it all the time. All grievance redressal mechanisms are nothing but post offices with the PMO's one as the Principal General Post Office. Each one of our complaints has been forwarded to the person who is responsible for not doing his or her duty. The person denies everything and the case is closed. This equally applies to Aaple Sarkar of Maharashtra Government.
I thought we had an out standing Governor a darling of the Press and the Indian Opposition Brigade in three Rs. Did it not strike him to reform the system especially when he was eying the top jobs in WB and IMF?
Dayananda Kamath
4 years ago
umber : PMOPG/E/2018/0074034
Name Of Complainant : Dayananda Kamath K
Date of Receipt : 16 Feb 2018
Received by : Prime Ministers Office
Forwarded to : Corporation Bank
Contact Address : Mangaladevi Temple Road,
P.B.No. 88,
Mangalore 575 001.575001
Contact Number : 08242440820
Grievance Description : Bigbankloot. Will the CBI RBI, ED, DRI, Finance Ministry, PMO,would like to investigate the scam from the following angle. Gitanjali Gems bailed out Corporation bank from its world cup tendulkar coin fiasco at a heavy cost to the bank. And many of the executives of the bank then have become heads of the banks involved in this scam. Even in Madhu koda scam where bullion transactions were there the bank involved had cmd from the same bank. Why Huge loss of crores of rupees to Rajasthan govt in sales tax scheme of imported gold is not being investigated. Why third party import lc for gold imports is not investigated. Why suddenly executives of midsized corporation bank became favourites to head big banks. Why CVC, RBi, and every govt authorities ignored the complaints registered with them and even continue to do it even now. These scams are bigger than what has come out. Will they wake up now
Current Status : CASE CLOSED
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Date of Action : 19 Mar 2018
Details : Since this is not a complaint against Customer service we request. Since this is not a complaint against Customer service we request you to close the complaint.

If this is the way issues are closed no wonder there will be many more scams.
Amitabha Bhattacharjee
4 years ago
Is it required to bring RBI under regular audit by any parliamentary committee ?
T.c. Shivswamy
4 years ago
As we are managing the Railways as a mammoth institution we should merge all the Public sector financial institutions,banks into one Mega institution with an All India financial services cadre managing it and fix accountability and responsibility to root out this indiscipline in our financial system.
Gopalakrishnan T V
4 years ago
In sum and substance the fact remains that borrowers outsmart banks, banks outsmart Reserve Bank, and the Government outsmarts every institution and all the stakeholders of the economy Viz, the economy, banks, tax payers, depositors , good borrowers , the customers of banks and the general public suffer perennially and the looters enjoy merrily. Dont miss the opportunities to make money at every lapse of authorities is what is practised.
Dayananda Kamath
4 years ago
Yes A bigger third party lc import of gold was allowed by 86 bank branches as admitted by RBI itself to an rti quiry by me where they refused to provide volume and value of imports and other details sought. In 2000 as an internal auditor of corporation bank I submitted a special report that these gold import transactions being carried out by its overseas branch Delhi are violation of various guidelines as I remember I have given 13 reasons for treating it as irregular transactions. One of the GM told me you are internal auditor not a CBI investigator. All banks continued these transactions and
and I was rediculed for submitting the report. only in2005 RBI issued a a circular that it has observed such transactions and they are unauthorised. I immefietly wrote to the Governor RBI that these tranasctions are justified because similar transactions are allowed in import of silver and platinum. RBI issued after 10 days stating such transactions in all precious metals are unauthorised. But they did not initiate any action on violators. Nor even now. When I was hounded harassed and punished for bringing out such irregularities I reported the same to RBI. And RBI replied they are not interfering in internal policies of the bank. If a regulator do not come to the rescue of whistle blowers and supports violators such frauds/ scams will recur regularly and they have to be held responsible for the scam. If such treatment is given to auditors who report irregularities which auditor will report the irregularities. I have also posted in pgportal in response to Modiji call to auditors to walk the right path that they will be doing it at their own peril. No action so far. Then what moral right they have to blame auditors. Will they give justice to the auditors who have been condemned for bringing out irregularities.
MUKUND PHADKE
4 years ago
Common people understand corruption at much earlier stage , but highly paid salaried people understand much later.
Mahesh S Bhatt
4 years ago
Atleast Finance Ministry & RBI shouldnot spat in public & address with solutions after taking salaries Mahesh Bhatt
Ashwin Mehta
4 years ago
Many a times, banks are citing the telephone number of Zonal Office, but most of the time zonal managers are unapproachable. I am trying to contact Zonal office of Denabank under Mumbai Suburban, which is situated at Vileparle west in Mumbai and the no. is : 022-26142826. I am trying to talk to Zonal manager for the last one week for certain queries and its answers, but not able to talk to him, as nobody answers that phone. It has been dialled at different times throughout the days, nobody answers that phone. ???????? A Dena bank aggrieved customer.
Dhananjaya Bhupathi
Replied to Ashwin Mehta comment 4 years ago
GE Mehtaji! Pl visit the bank's website and try for mobile no. of zonal Manager with name. You can as well have his email ID.
SuchindranathAiyerS
4 years ago
The RBI is just the moribund bond maiden of the Government as are the judiciary. The source of crime and corruption in India are the Constitution, the laws and the Governments since 1947.
Dinesh Kudva
4 years ago
A strong whistle blower policy framework is to be adopted by all banks and whistle blowers should be protected rather than victimised. The Bank unions must be more pro active in identifying malpractices. The interests of general public and majority of honest and hardworking bank employees should no more be sacrificed at the hands of corrupt few.
Dayananda Kamath
Replied to Dinesh Kudva comment 4 years ago
You said it
Maganty Sai Rama Rao
4 years ago
We all must demand for action against the erring officials from top downwards like Mr Rama Chandra Raju of SATYAM.
Shrikant Dattatraya Sahasrabuddhe
4 years ago
Tag every concerned management person(from bottom to top)with the amount of bad loans processed by him and let them feel the heat of searching inquiries(including searches into individual wealth records)alongwith appropriate and stringent disciplinary actions .
B. Yerram Raju
4 years ago
A few things need to be urgently put in place to avoid disastrous future:
1. Stop circulating the modus operandi of fraud that is very likely to trigger innovation in fraudsters to take a deeper and safer plunge.
2. Let the Bank Boards be purged
3. Let not the RBI be part of any Bank Board
4. Let the RBI recraft its regulatory role
It is not in the interest of the nation that the central bank be put to guillotine test in public glare and therefore let the RBI form a Committee for self introspection with persons of high integrity with experience in RBI functioning.
5. Institutions like the NABARD, SIDBI would require a relook from the settled objectives in the respective statutes and if necessary restructure them.
6. Governance is critical and the Government has demonstrated its failure on this front ever since nationalisation of banks. Hence let the Government wind up the department of banking.
7. In the existing dual control mechanism, one regular would pit against the other for the malaise perpetrated in the system.
Stemming the rot before it stinks further brooks no delay.
Dhananjaya Bhupathi
4 years ago
Sucheta Dalal is successful in arriving @ the crux of BANK FRAUDS /SCAMS involving lac s of crores of Indian Rupees. Unless the GOI possess political will, nothing can be done. The link of Industry-Banks-Politicians is inter-dependent for their survival. Be it BJP, Congress TDP/TRS---all are one & the same. Everybody is bent on gaining easy money , not withstanding political affiliations. From technical point of view, What IBA Chairperson on failure of Audit, Inspections, Concurrent audits, etc., is true on the face of it. The nexus between Politician-Bankmen @ apex level and Industry is too strong to touch.
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