The government-owned banks are plundered routinely and bailed out periodically. But RBI, SEBI and ministry of finance remain unaccountable and unconcerned
The arrest of SK Jain, chairman and managing director of Syndicate Bank, has sent shockwaves through the banking and corporate world. The Central Bureau of Investigation (CBI) accuses Mr Jain of allegedly taking a bribe of Rs50 lakh for increasing the credit limit of some companies in violation of banking rules. One of the beneficiaries was apparently Bhushan Steel whose managing director Neeraj Singhal has also been arrested.
CBI followed up the Syndicate Bank case by launching a preliminary investigation into IDBI Bank. The Bank sanctioned Rs950-crore first-time loan to Vijay Mallya’s Kingfisher Airlines Ltd when it already had a negative net worth.
CBI’s actions have caused all lending institutions to tighten the screws on borrowers. Fear is running high because nobody knows how many more phones CBI is tapping. But will it lead to a serious, long-term clean-up that includes a focus on political corruption, top appointments at nationalised banks? Let’s take a look.
The Reserve Bank of India (RBI), the banking regulator, until recently, remained content with issuing warnings about burgeoning bad loans. RBI governor, Dr Raghuram Rajan, in his early days in office, was more concerned that inquiries by the Central Vigilance Commission (CVC) that prevented bankers from functioning effectively. Is he now convinced that the bigger problem with Indian banking is the rot at the top?
Dr Rajan recently announced that he is working with the Securities & Exchange Board of India (SEBI) to prevent wilful defaulters from accessing the capital market. We remain sceptical about this, for several reasons.
First, it took five years for SEBI to bar B Ramalinga Raju and four others from the capital market for 14 years. Its order asking them to repay Rs1,849 crore is rather meaningless, when you recall that this is a straightforward case where Mr Raju confessed to the fraud only because he had no money.
No forensic investigation has thrown up a clue about where this money went, although the corporate grapevine is sure that funds were diverted to Maytas (Satyam spelt in reverse), a group company, that was on its way to becoming a real estate and infrastructure giant.
Second, we drew a blank when we tried to find out whether RBI was inquiring into the dubious Rs9,000-crore corporate debt restructuring (CDR) package to the politically powerful Lanco group. Our Right to Information applications were stonewalled. If pepper-spray Ladagapati Rajagopal (a member of parliament) fails to borrow more, it will probably be because his clout with the Congress leadership is irrelevant today. That is, probably, why he has been forced to sell his power plant to Adani Power recently.
If RBI were really serious about the quality of lending, it also ought to keep a watch on the mega-borrowings of two other groups—GVK and GMR. Instead, the chairman of the GMR group is on RBI’s central board of directors.
Another Hyderabad-based family that remains unscathed is that of the Reddys of Deccan Chronicle who faced allegations of forging documents to raise Rs170 crore from Future Capital. Is the case buried? Or is SEBI doing another slow investigation that will lead to meaningless action in a few years from now?
Then there is the flamboyant, Teflon-coated, Vijay Mallya, who joyously tweets about sporting events, while his bankers stew. Media reports say that Mr Mallya may, finally, be declared a wilful defaulter, but nobody reports why bankers have yet to invoke his personal guarantee. Remember, Mr Mallya went to court and won the right to pocket a guarantee fee, running into crores of rupees. He is in court again to stop United Bank of India (UBI) from declaring him a wilful defaulter. This is yet another example of how the powerful in India—whether government agencies or individuals—tie up matters in endless and, often, frivolous litigation and claims. They also get a patient hearing from the courts because of their ability to hire an array of ‘eminent’ (read expensive and politically powerful) lawyers.
Supreme Court Justice JS Khehar recently observed, with some anguish, that there should be “consequences to fighting on after having lost in every forum” causing a “direct loss to the nation” in terms of cost of litigation and waste of the court’s valuable time. This applies to Vijay Mallya as well.
The rot in nationalised banks is at the top and starts with the deal-making that precedes top appointments. RBI cannot avoid responsibility for poor supervision either. But it has remained strangely unembarrassed about the fact that bank officers and employees’ unions seem more concerned than RBI about escalating bad loans that threatening to turn banks sick. Bank unions have repeatedly pointed out that bank chairpersons get away scot-free, despite the worst kind of corruption leading to bad loans.
In 2010, I wrote, “…most of us were seriously shocked to discover that Central Bank of India’s former chairman & managing director HA Daruwalla would not be punished after a series of proven corruption cases.
Although charges against Ms Daruwalla were proved, all she got was a ‘letter of displeasure’ and only then did we discover that there are no provisions to hand out stiffer punishments to bank chairmen (except removal from service) who allow banks under their charge to be looted.”
An RTI activist also uncovered the fact that Central Bank of India spent Rs70 lakh in defending itself against a whistleblower, of which nearly Rs50 lakh went to the Supreme Court lawyer Abhishek Manu Singhvi who was the Congress spokesperson. Nothing has changed since then.
Cut to February 2014, when Archana Bhargava, chairperson of UBI, was allowed to take voluntary retirement under Dr Rajan’s watch. Not even a letter of displeasure was issued to her. In Ms Bhargava’s case, the Bank bounced back with improved financial results, immediately after her controversial exit, vindicating the allegation of senior bankers that she was deliberately and recklessly suppressing its performance. An inquiry revealed that she had bagged the post due to her political clout, despite a record of previous transgressions and investigations.
This history makes us sceptical about a clean-up action. In 2012, writing in Moneylife under the pen-name Gurpur, a senior banker, said, “NPAs have to be taken seriously because loss-making banks are inevitably bailed out and capitalised with the taxpayers’ money in India. There is another major issue that most analysts miss—banks are allowed large write-offs against NPAs which reduce their tax liability. Lower taxes paid means fiscal stress that has to be borne by taxpayers either as inflation or by higher tax rates.” Finally, taxpayers have to bear the cost of frequent recapitalisation of banks that happens without fixing accountability.
Let me end by pointing to the futility of corporate governance rules which are revised every few years. Every new scam exposes the hollowness of disclosure and compliance requirements. Satyam Computers failed, despite a glittering board, while Bhushan Steel was able to borrow a stupendous Rs40,000 crore (it is the country’s most indebted steel-maker), despite the most lacklustre board. It does have a former chief election commissioner in Brij Bihari Tandon, but the rest are faceless accountants and lawyers. MV Suryanarayanan, a former nominee of LIC, has clearly become so close to the company that he is now an ‘independent’ director.
In Syndicate Bank, a father passed on his directorship to his young daughter like a family right. That may only change because the new government will want its own appointees on bank boards. As for the middlemen in the Syndicate Bank episode their well-known shady past only requires a Google search.
The new Companies Act places onerous responsibilities on independent directors with serious consequences for failure. But the ministry for corporate affairs probably needs to be reminded about its new powers and prodded to act on them for public good.
Sucheta Dalal is the managing editor of
Moneylife. She was awarded the Padma Shri in 2006 for her outstanding contribution to journalism. She can be reached at
[email protected]
hats off to madam sucheta dalal but the country is so corrupt if any person raises their vocie against corruption because of this mafia world where man power and money power all the effort is sabbotaged we have to think about our family rather the cause of others and i being an international media and channel when we raise any issue there is threat and men be targetted our staff so we never raise any issue in india including mine we need madam help if she can please help me persoanl request
S.K.PATEL
Chartered Accountant
this is true this was said long time ago that officials of govt services such IAS and IPS and other top position people are appointed as consultant by top corporates inorder to brake the law and get their orders passed since thier juniors would be holidng their position so its easy to approach and get things done once this is curbed we cannot curtail the corruption and braking of rules is common and justice is denied for common man is surmise this is the plight of present india where justice is denied for common citizen
P.H.Trivedi
In the next level, when the consortiums is formed, the banks give each other comfort by building even more paper.
Any normal human being trying to research this can go mad. But very soon one learns to spot the patterns, and the grand plan emerges, which is usually charted all the way to the whole 13/2, 13/4, DRT, SARFAESI, BIFR route.
What's now changed is that these files are moving around outside the secretive purview of the banks thanks to soft copies and also thanks to some amount of fear in sme bank officials.
Anyways, everyday, more rot opens.
The greed for money continues and is nothing but abuse of knowledge gathered while in service and serve the companies.
this happens to most of the bank officers after they retire or go on vrs they have been abosrbed in big corporate either to get fresh loans unsing their influence and since they are rule abrasted they know the loopholes in the banks and this same happens in sebi nse and bse employees getting abosrobed in big corporate stock broking firms just to brake the rules and regulation framed by them the govt should come with strict rules that once an bank employss or any govt employees or judges retire they should not reappointed if such comes only the corruption in banks sebi nse bse would reduce without that there is no point on RBI governor saying that inflation is high and unable to control he knew the loopholes but he is unable to execute his proposal hence he is lameduck before the govt
Even the individual letters from the banks to the corporate, and the replies from the corporate to the banks, sound as though they have been written by the same person in some of the cases, down to the same mistakes of grammer/spelling/syntax/formatting.
There are two specific banks which appear to buck the trend, one if a co-op bank and the other is a private bank, and their correspondence appears to be independent. It is also observed that these two specific banks have the lowest NPA %s, below 0.25%, and manage to achieve higher lender interest rates - which is obviously because their due diligences and forensics are way better than that of the other banks.
In the case of one of these banks, staff sent on site visits and meetings are now asked to even carry their own tea-bags/coffee, sugar and milk powder sachets, so that they accept nil hospitality.
Otherwise, as you have indicated, multi-bank consortiums are a gathering of nodding heads - even when one spots Directors and Mg Directors of banks attending these multi-bank consortium meetings.
Multi-bank consortium meeting minutes should be made public with some parts blacked out at the earliest, that is the only solution, when the money belongs to the public.
I entirely agree with you. the bigger the consortium the bigger is the fraud. in all the recent, more particularly the defaulting cdr cases the numbers of the bank is on the increase. one believes the other has carried out site inspections and/or stock audit and the others sit tight with the borrower going scotfree to exceed drawing powers.
I have also been in shipping, and can spot fake B/Ls, L/Cs, contents and more from a mile away - but then, in that role in life, my objective was to ensure freight was earned and collected. Did not mean I was blind, nor was I anti-National, and more than once, containers have "by accident" fallen down and split open or seals have sadly been broken leadng to re-examination.
Likewise, in banking, some amount of risk-taking and winking eyes is probably par for the course. But what has happened in the last decade in terms of totally destroying our manufacturing capabilities is something bankers are also majorly responsible for and this is my mission currently.
You see, I have also been in commodities trading as well as made tech in transaction management which was used in banking, gaming and preventive security/defence - and can spot the flaws in all arguments being put forth on NPAs. My take is that the real NPA level in India is around 15%, and you can know what that means.
The NPA level of 15% put out by RBI is grossly understated. When the CDR and disguised NPAs are added thereto it becomes astounding.
Before professional bank audit of over three decades i was in Voltas and headed the finance function ina Delhi based export company and very well acquainted 'practices' fair and unfair.
I can not agree with your submission that "you must include the . . . ." concept as an excuse to take forward your point of view. Jobs are secure, pension benefits are assured, what is the excuse for the top-layer of officials in banks to claim that they did this or that "under pressure"?
As rightly said i have been saying that sebi nse bse are most corrupt organisation in india and they donot have proper accountability even if we produce with valid proof the sebi is not prepared hear our case since i happen to be associated with international media and channel group we have easy access for international platform in exposing india scam but it would speak bad about our country and indian administration and that to after the new govt taken up we are hesitant to publish this scam of sebi nse bse and my case itself is an fitting example for maladministration but we are not for back stabbing our mother land please as an noble organisation we request madam sucheta dalal to take special interest in the case sathya cumaran dhandapani and try to get justice
As truly said by Nagesh RBI is not audited by CAG, if it would be audited, then the worms would come out of the can and many heads would have to roll.
Why the Board of Director only, most of the retired executive are assured of lucrative employment after retirement which includes the one Ex- Regional Director Mumbai , who was claiming dishonestly the overtime for continuous five months for his private driver or negatively exploiting him without giving him a break of one day in gross violation of Human Rights and Labour Laws and also the claims were made for the period, while being away from headquarters as per RTI. It is an incentive for dishonest claims.
In a shocking incident of outraging the modesty of woman police constable on duty in the premises of RBI, Fort Mumbai, during the Banking hours, by few goons of the union, known to terrorise the RBI, who were arrested in the premises by the Police taken into remand, released on bail and subsequently proved guilty and convicted by the criminal court and are roaming scot free in the premises of RBI.
But when an RTI was used to seek information in the above said shocking incident, RBI stated no such information is available. Which proves the CCTV’s had stopped functioning in the main Building premises, Security officials at the premises went missing or were sleeping and the management was not aware of such incident having taken place during the Banking hours and to prove them wrong I provided the information provided by the Police department under RTI Act. But as usual no reply has been received from the RBI. Truly said “RAM RAJYA in RBI”.
The 3 monkeys of Gandhiji are being followed by RBI. They won’t hear the voice of those who talk or raise issues against RBI, they will shut their eyes to the corruption or abuse of power in RBI and if pointed they will become dumb.
It speaks of how safe the employees are in the premises of the RBI either from the goons who outraged the modesty of Police Constable or from a terror attack, since their CCTVS would not function, Security officials would go missing or would be sleeping, the management would pretend of not knowing any such incident etc etc, etc. .The less said of the rot it would be better, since rot are not bothered of their stink.
In the revised schemes the modus of Inspections and the role of RBI nominees calls for an urgent revisit.
It appears not positively responding to valid RTI queries appears to be the order of the day. The Executive Director, the first Appellate Authority instead
of giving a personal hearing for my appeal on CDR without applying her mind outright rejected the appeal.
I do get the sinking feeling that nothing is really going to change under Mr Modi's watch. There aren't even any stirrings of change.
The NDTV/Chidambaram Scam, brushed under the carpet?
Col Purohit's illegal incarceration?
Full Page Ads in Newspapers announcing new Projects?
I do hope I am proven wrong.
But, I feel sorry I voted for Mr Modi,
Hats off to you, Debashis and your entire Team at ML for relentlessly exposing the scams/shams of all.
In a decently governed sector, these heads would have been sacked at the merest hint of their involvement. The brazenness with which FinMin & RBI have colluded to ensure the corrupt go scot free is proof that Modi must set heads rolling as the first step in his anti-corruption promise.
No face-saving quiet exits and reappearance later as advisors, but a public name & shame campaign, with a punitive exit are the barest minimum Modi can do.
Will he? As of now, Arun Jaitley appears to be a shield for the corrupt rather than a nemesis.