Exclusive: RBI Inspection Reports on SBI Reveal Evergreening, Window-dressing, Cover-ups and Worse
After a long battle with the Reserve Bank of India (RBI) from 2016 (Finally, RBI Shares Inspection Reports of SBI, ICICI Bank, Axis Bank and HDFC Bank under RTI), Girish Mittal, a dogged Right to Information (RTI) activist, was finally granted access to bank inspection reports for four years – 2012, 2013, 2014 and 2015. Now that we have them, it is important to find out what the RBI fought so hard to hide and suppress, on behalf of banks—to the extent that it even claimed a fiduciary relationship with the banks. 
Although the reports are now a little dated, it is worth diving into what the RBI inspects and how seriously banks take these inspections and correct themselves. 
I studied the four inspection reports of SBI that have been released by RBI. The reports find fault with the bank across every operation. However, I am going to make allowances for the fact the some slippages are bound to happen given SBI’s sheer size and scale. What still comes out very starkly is the complete lack of accountability and ownership. 
Each year, RBI subjects every bank to an inspection that focuses on risk management and integrity of accounts. The inspections are fairly comprehensive and help bring out the deficiencies in risk management, processes and the overall functioning of the bank.  
These reports are submitted to the concerned bank, discussed with them and thereafter, the bank is expected to remedy the deficiencies. So, it is logical to expect that a deficiency that is pointed out in one year is not repeated in the inspection report of the next year, IF the directors and the management of the board take the reports seriously. 
The owner of the public sector banks (PSBs) is the Government of India. This essentially means that there is no real ownership and PSBs exist merely to serve political bosses. The RBI reports make depressing reading and if the holes that it drills in the bank’s operations were plugged, the government would not need to repeatedly pump in money to re-capitalise banks. But this doesn’t seem to bother anyone. 
Check the images below. They are just a sample of hundreds of pages of deficiencies across each and every parameter of SBI’s operations that the RBI has documented. And since this is unlikely to be a 100% check, there could be a lot more. 
(Rupees in million.  Last column is 2013 March, and the first one is 2015 March)
SBI scores poorly on every single issue that the inspection reports have commented on—from management quality to sophisticated risk management tools.
In the old days, transactions were simple and banks did not need to recruit specialists or assign certain tasks to people with relevant expertise and domain knowledge. Everything could be reduced to template form filling and any credit over four crore rupees was to be submitted to RBI for prior approval. Today, the complexities are a thousand-fold and delegation is extensive. But SBI does not seem to have a grip over what is required. 
The Risk Assessment Reports (RAR) for each year, throw up the same errors of omission and commission, a concerted effort to cover up non-performing assets (NPAs) by window dressing, suppression of data, evergreening of loans, ignoring laid down KYC (know your customer) procedures, flouting Anti-Money Laundering rules, suppressing employee fraud, ignoring RBI reports on deficiencies, inability to manage processes and risks etc.  This seems to be the DNA of the bank. Or it doesn’t give a damn about RBI inspections, since there is no attempt to correct issues.
The lack of ownership in processes and controls is partly attributable to the lack of continuity at the very top. Every new CEO seems to just focus on ‘managing’ profits. So there are huge write-offs in the first year of every new chairman (nice way to blame the predecessor) and targets are based on a low base – this practice condemns the bank to mediocrity. 
Add to this the short tenure at the top (from an organisation point of view), in a business where technology and complexities are dynamic, risk management remains an orphan. In one inspection report, RBI has pointed out that the chief risk officer was also on the credit committee! It is like the cat guarding the milk.
Given the short tenure at the top and the fact that there is no ownership, the chairman is focused on bigger things like public relations (PR), pleasing the political bosses and planning post-retirement sinecures.  
Once upon a time, SBI could be choosy about who to lend money to. Today, it has to compete with well-run private sector banks like HDFC or Kotak who now snatch away the best businesses. 
And, yet, there seems to be a complete lack of interest in the way the bank is run. This is best summarised by the image below that resulted in the annual report mentioning an incorrect number of branches. 
The success (measured for a bank in terms of size, asset quality and RoE) of a financial institution is dependent on how robust its systems, controls and processes are. This is especially true in an automated environment, where nothing can be left to personal discretion or subjectivity. 
The inspection reports point to violation of know your customer (KYC) norms, which probably leads to likely abetment of money laundering; one report also says that bank officials were reluctant to share information. 
Recurring violations pointed out by the inspections include inability to balance cash in ATMs, reluctance to prosecute employee frauds are some of the recurring themes.  
In credit, RBI points to improper assessment of credit needs, non-enforcement of security given, shortfall in loan security as advised, disbursement of loans even before a charge is created on the collateral, lack of surveillance on credit.
Evergreening of loans is evident from the undue increase in loans to problem sector such as diamonds, power, etc, violation of single customer credit limits, violation of sector limits. Clearly, the board is to blame. 
Unsurprisingly, the RBI inspections have repeatedly pointed to SBI trying to hide bad loan by ever-greening accounts, granting loans to associate companies to meet other loan obligations, unauthorised lending against capital market Instruments, granting indulgence to borrowers, not keeping the board informed of credit related problems…the list is endless. 
The inspection reports also points to repeated frauds in retail loans, SME (small and medium enterprise) loans, government schemes… there is no aspect of credit that is clean. There are also issues with SBI’s overseas operations, which require compliance with our laws as well as those of the countries they operate in. 
This leads us to the big question. Does the board of directors have any knowledge of things? Do they even get to read the inspection reports that the RBI sends the banks? Are they tabled at board meetings? Do they boards ask why the same issues appear year after year? What about the statutory auditors? Do they note the findings of the RBI inspection? Do they bother to check why the same issues remain unaddressed? How does the internal audit mechanism work? Are their findings monitored by the board? 
Each year, the report also reconciles the profits as ‘reported’ (I presume this is after audit by the statutory auditors) and as amended by the inspection. There is also a detailed list of some large borrowing accounts that SBI has not recognised as NPAs (non-performing assets) or not classified as weak accounts. As a result, the profits are inflated due to insufficient provisioning. A glance at those names and the amounts involved clearly indicate compromised lending standards.
Some of those accounts are in the national news today. By postponing the recognition of bad debts, the management is pushing the chances of recovery farther away. Clearly, each chairman is only focused on pretending that the bank is performing better than it is.  
SBI is a great franchise. But we need to stop the bleeding of the taxpayer money that goes in as recapitalisation. My first impression is that someone with ownership and commitment can double the RoE. It has advantages of size, reach and by status of its being a preferred banker to the government.  The management structure needs to be revamped. Risk management and operations need focus and continuity of supervision. Business has to be subjugated to risk management and not the other way around. 
However, in the area of credit, something can be done within the present constraints. All credit decisions need to be centralised. Local outposts and branch managers should be devoted to compliance, processes and operations. 
I should also add one positive observation. The report for the year 2014-15 was not as harsh as the earlier ones. Hopefully, the public noise over NPAs and frauds is the catalyst that improves things. 
Here are the inspection reports of the SBI Bank as provided by RBI to Girish Mittal under the RTI Act...
dipankar ghosh
2 years ago
to solve out such type irregularities most important issue is stringently de politicization of psu bank is needed it is not possible here where is the credentiality of political system on the other hand to correct other entity
one has to ascertain doubtful entities(though in india it can be place for obtaning bribes)and to get themselve autided by int- auditfirm if irregularities are soughed out immediate imprisonment with expeditious trial but good gesture of society is required.
3 years ago
Also please analyse the latest RBI inspection reports for years 2017 and 2018
3 years ago
This is the reality we need to face. That's why I had suggested earlier that some of these Private Banks CEO have to be deputed to these Banks. RBI has to ensure that these Private Bank's MD & CEO have to have compulsory one term of 5 years to be in a PSU Bank posting at the helm. They shall imbibe how the checks and balances, policy guidelines / framework needed to be established. This will help the PSU Banks also to learn what is called accountability and how their profitability can be improved qualitatively and quantitatively and that too sustainably.
P M Ravindran
3 years ago
Not at all surprised. Being a public owned institution in India means there is practically no ownership whatsoever. I mean no accountability whatsoever. If this is the state of banks which at least have an index-profits-to measure their performance just imagine the frauds in our institutions for delivery of services of the government. I once sought information of the authority conducting inspection of the Collectorate and the copy of the latest such inspection report from the Palakkad Collectorate. Need I say I did not get any?
3 years ago
Only Moneylife has published analytical reports on RBI inspection of SBI,Axis bank and done a successful watchdog services to investors. We eagerly await the same on ICICI bank.
sarbeswar lenka
3 years ago
is it that bad, honestly?
3 years ago
A report obtained by so called RTI activist and Interpreted, made news by novice correspondent and again commented by social media activist.
Please first gain knowledge to understand the nitty gritty before uttering out fakeness..
P M Ravindran
Replied to . PARSHANT comment 3 years ago
What nitty gritty should one understand? The bank accepts deposits from the public at a paltry interest of say 5 percent and lends it to the needy at a high interest of about 12 percent. And then if the government has to pump in tax payers' money to cover bad debts is there anything more required to indict the bank for incompetence and fraud?
3 years ago
Mahesh S Bhatt
3 years ago
Mera Bharat issi liye Mahaan Hai Sar-Car kaun chalata hai yeh kabhi maalum nahi padega.Dhundte rahe jaaoge Sab chalta Hai Bhai All is in the well Mahesh Bhatt Kirticorp $5 trillion tak Gol Maal Haunting rahe ga.
3 years ago
An ILFS in the making?
3 years ago
"What still comes out very starkly is the complete lack of accountability and ownership."


Total harassment being caused to individual account holders while dealing with SBI.

I had a very bitter experience when approached SBI for a student overseas education loan.

I was given in writing by a corrupt official -Loan Dept.-of bank -WHO WAS EXPECTING SOME BRIBE -that my student loan will lapse if disbursement is NOT taken within a year.


I had complained to vigilance dept. of SBI at Nariman polint( SBI Chairman's office ,and Zonal BKC offices at Bandra Kurla Complex. ).

By the time my issue got resolved-these CORRUPT official had RETIRED with hefty retirement benefits and pension !!!!

Such a state of affairs with SBI at grass root level.

One can imagine what must be happening with corporate customers !!!!!!
P M Ravindran
Replied to DeepakSB comment 3 years ago
Yes, the SBI is totally indifferent to ordinary customers. In fact I had to approach the then Governor of RBI to get even my pension issue sorted out. Even the banking Ombudsman had failed me, fraudulently.
deepak sharma
Replied to DeepakSB comment 3 years ago
What about the corruption in police and judicial department???
P M Ravindran
Replied to deepak sharma comment 3 years ago
Corruption in police and judiciary is rampant. In fact Transparency International which carried out a survey and reported that these two are the most corrupt institutions in India, is facing prosecution under the Contempt of Court Act. While this is a contributory factor for the total failure of the rule of law, it cannot be a justification for any crime.
Ramesh Poapt
3 years ago
not 'to big to fall'..it can b a n bomb sometime if not taken care of.
3 years ago
SBI or Alibaba's caves?
darsh kkka
Replied to PRADEEP KUMAR M S comment 3 years ago
Unfortunate to target sbi only, why private bank details missing..??
Sucheta Dalal
Replied to darsh kkka comment 3 years ago
because everything cannot be in one article. This itself is just the highlights of four years of fat inspection reports. Read moneylife regularly you will find the other four published too -- doesnt matter the price we pay in lost advertisements!!
Replied to Sucheta Dalal comment 3 years ago
darsh kkka
Replied to Sucheta Dalal comment 3 years ago
I see icici bank too...thanks a lot..you are true hero in journalism..Moneylife is home page for my mobile browser..I am regular follower of it..great going
Replied to Sucheta Dalal comment 3 years ago
Madam, Thanks for the great work by Moneylife. Please analyse and upload the recent years inspection reports for years 2017 and 2018 of the big banks. Please also analyse the Yes Bank and also other top public sector banks inspection reports
Replied to darsh kkka comment 3 years ago
Yes, I too am waiting for it. Hope for it from ML itself
Sucheta Dalal
Replied to PRADEEP KUMAR M S comment 3 years ago
Thank you. Appreciate your hope from us, but do also ponder over why mainstream media does not 'break news' on SUPER large entities who are BIG advertisers -- at least not until they are already in serious trouble already and regulatory action begins -- that is then reported!
nilesh prabhu
Replied to Sucheta Dalal comment 3 years ago
That is the reason, readers trust Moneylife more than any other Main stream media
Replied to Sucheta Dalal comment 3 years ago
I lay hope at your doorstep, as I can trust what I read, and not be bothered to break my brains to figure out how my perceptions are being hijacked. Thank you for your great work. Your existence is MY necessity
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