When India imposed a hard lock-down, decision-makers were clueless about how it would impact over 140 million Indians who were out of a job overnight and stranded across the country, far away from home and families. After they decided to walk thousands of miles without adequate food, water or money, their trauma continued to be ignored until it sparked national outrage. This was after the first hard lock-down, which had already stripped them or their money and dignity and left them dependent on charity for food.
Now consider the ordeal of another set of people. Their hard-earned, carefully accumulated safe savings and investments looted because of a combination of failed supervision, fraud, or unfair regulatory action since 2018. The unending COVID lock-down had dealt them another blow with business, trade and jobs vanishing overnight. These are the victims of PMC Bank, those who were hard sold additional tier-1 (AT-1) bonds of Yes Bank and the thousands whose pensions are stuck in Infrastructure Leasing & Financial Serices (IL&FS) or money is locked in Franklin Templeton’s six closed schemes. There are also others who have lost money in cooperative banks.
These victims are significantly smaller in number— may be under 100,000; they are not even a vote bank, so the apathy towards them is even worse. Many in government, who are protected by pensions, believe that these are educated people who were greedy enough to look at 0.5%-1% more in interest. Consequently, their pleas and protests and social media hashtags are not even acknowledged (#YesBank_AT1_RetailInvestor
After 2016 and demonetisation, we are no longer surprised at such high-handedness. But what comes as a complete surprise, and was not expected from this government, is the refusal to find quick and possible solutions
(acquisition and transfer of ownership), while allowing these failed organisations to bleed depositors’ or investors’ money. Consider this:
In October 2019, we wrote
how this fraud-hit Bank, with 137 branches, was gobbling up Rs27 crore a month in order to be kept alive, but in a zombie state under an administrator. The banks cannot earn revenue and the staff is only engaged in loan recovery and minor administrative work. So whatever is left of depositors’ money after the Wadhawans of HDIL had bled it dry, will be gobbled up in keeping the Bank alive but in coma.
Meanwhile, protests by depositors were weakened by paying over 80% of the depositors with savings of up to Rs1 lakh. The rest don't seem to matter.
The government is correct in its decision not to nationalise private losses and fraud by merging PMC Bank with a public sector bank. But the alternative is not apathy and silence. The finance ministry and the Reserve Bank of India (RBI) owed it to the investors to find alternative solutions. It did nothing.
When PMC Bank failed, there was a real possibility of ensuring it was quickly acquired. Through Moneylife Foundation, we worked hard at helping depositors by exploring the possibility of an acquisition, hoping we could push it through the courts and even submitting proposals and memorandums to the RBI and the Central government.
In India nothing works without the blessings of the government and the regulator. Acquiring a fraud-hit and failed entity is fraught with landmines and the government has to be on board to smooth out issues with the larger objective of protecting depositors’ money.
Just after PMC Bank failed, there was a real possibility that investors (may be foreign investors) would be willing to pay a big price to acquire its banking licence and branch network in key metros. PMC was an attractive proposition with 137 well-run branches with core banking, forex and credit card permissions, superlative service culture and the unique distinction of working long hours for 360 days a year. It is this that had lured many businessmen and traders more than the 1% higher interest that is being ridiculed as their greed.
Unfortunately, the government was uninterested. Instead of quick action to strike when the iron is hot, regulators tied themselves up in knots over who should be allowed to get the precious banking licence.
Ironically enough, they have been horribly wrong in their selection for bank licenses many times over the past decades. Since RBI failed to act, a good opportunity was squandered. For nine months, RBI has been insisting that it is working on a solution. But it has continued with the services of the same mediocre administrator (a retired central banker with a patchy record) who has been giving false hopes to select depositors. Fast resolution was important, but it is still not too late, provided the government wants to help depositors.
Even after the global economic mayhem due to the COVID pandemic, Mukesh Ambani’s Jio platforms have managed to raise a whopping Rs87,655 crore through leading global investors in just six weeks. Many Indian start-ups with a good story continue to raise money. If there is a will, PMC Bank may still find a suitor, if RBI and the finance ministry are willing to be flexible and find ways to make it happen.
It can start by appointing a savvy administrator (many names have been suggested to the RBI governor) and empower him/her to find out-of-the-box solutions with full backing of RBI and government. This suggestion has been studiously ignored.
YES Bank: This is another case where investors, mainly senior citizens, had been deliberately defrauded by none other than the relationship managers of the Bank. They were told that the AT-1 bonds were safer than fixed deposits and locked in a higher interest rate of 9% for five years.
When the Yes Bank bailout through a public-private partnership was announced, many bankers, including private sector investors who brought in equity, argued
for AT-1 bonds to be converted into equity at a big haircut to protect investors. Given how Yes Bank’s price soared after the bailout, this would have been a win-win solution.
Instead, the government and the regulator threw AT-1 bond-holders to the wolves on the ground that they were savvy investors who ought to have known the risks involved. This was a false assumption on so many counts.
The so-called savvy investors included mutual funds who have taken no personal hit – it is their investors who will suffer lower net asset values. The regulator and the rescuers were clueless that many individual investors were the Bank’s own customers. These investors have a very good case to make; but our judicial process is slow and expensive, while many depositors are desperately in need of money today. Finally, this move has dealt a systemic blow to AT-1 bonds as capital raising option for banks.
Even in Yes Bank
, the bankers who were responsible for duping investor probably continue to hold their job and get paid, there are no consequences for regulatory failure and only the investors suffer crippling losses.
IL&FS: This massive financial conglomerate failed in August 2018.
Two years later, while a slow process of resolution drags on, shockingly between 31st March and 4thApril this year, several key employees of IL&FS were given a 10% retention payment to stop them from leaving their jobs! Over Rs4.48 crore was paid out, when I brought this to the notice of RBI governor and chairman of IL&FS, Uday Kotak.
Subsequent payments were reportedly stopped. But don't forget that the one forensic report after another has exposed the complicity of Dilip Bhatia, who has been elevated to the post of CEO (chief executive officer) of ITNL Ltd (IL&FS Transport Network Ltd) and may even have been paid an incentive.
Why does this happen? Well, if a country goes into a hard lock-down without a clue about how it will devastate the lives of 140 million Indians, can we really expect any more empathy or understanding about a few lakh middle-class people who are invariably the victims of financial crimes and fraud?