Riyaz Ahmed Bhat
Recent surfacing of the financial fraud in the second largest Indian public sector bank, The Punjab National Bank, has not only put a question mark on ability of supervisory mechanism in Banking Industry of the country but it has also shaken the confidence of ordinary citizens who are using banking services for safety of their wealth in form of deposits kept with Banks. Though lot of panic has been created in the masses through electronic and social media created frenzy after unearthing of this fraud yet magnitude of the fraud still seems to be a media assessment rather than an accurate quantification. The experts still believe that it will be too early to correctly predict the losses banks may have made due to this fraud.
The primary question before the experts has been what is touted as crime by some individual black sheep is that a failure of regulatory system put in place to supervise its functioning? The answer to this question will come once a thorough professional investigation culminates in ensuring the accountability of individuals or institutions for the actions they may have committed with malafide intent. This accountability followed by punitive action through criminal justice system needs to be undertaken so to expose the real hands behind financial impropriety irrespective of their social class or political affiliation. Furthermore the citizenry of the country is unable to understand why frauds in financial system of country repeatedly occur and accused/convicted persons like Harshad Mehta, Ketan Parekh, Vijay Mallya, Nirav Modi and Mehul Choksi after taking the system for a ride evade the strict punitive action by country’s criminal justice system. They are of the opinion that this attitude of law enforcement has encouraged small time criminals to become dons and then enjoying different privileges at the cost of tax payer once they start entering through elections to the legislative arm of the governance system. The intention for this entry is that they want to influence the criminal justice system of governance. To curb such a loophole, in the system of governance, the legislature/ judiciary of the country need to initiate a process of reforms so that accused or convicted are barred to reach the position where they are not in a position to influence such decisions.
It is frustrating to observe that every time a financial scam has happened, numerous layers of defence in the system have been breached. These layers are present in the name of supervision by various regulatory methods involving different layers of internal management and outside agencies. The failures of this supervisory mechanism, in having detected the signals of occurring of frauds, has repeatedly been brushed under the carpet and such an attitude of authorities have enabled the clientele of banks to raise questions on efficiency of these regulatory mechanisms. As a result we see sacrifice of small Bank becomes inevitable and PSBs like PNB are asked to take over these failed banks. The failures till now include the names of more private sector banks than PSBs like Bank of Bihar, Luxmi commercial Bank, Bank of Karad, Madhavpur Mercantile Cooperative Bank and Global Trust Bank. But it is an irony that the perception now given to public, after the surfacing of recent fraud, is that PSBs are white elephants being fed from tax payer’s money which is not a factual truth but a diversionary tactic to pass the buck. This diversionary tactic is actually part of campaign undertaken by the Privatisation lobby for character assassination of PSBs which have always remained a thorn in flesh of private corporate who want to control the pool of public wealth mobilized by these financial institutions. But this privatization lobby cannot reply to argument that it is mostly private banks which have always come to limelight after surfacing of frauds for wrong reasons of flouting regulatory norms. Pertinent to note that mostly it has been also found that board of directors of the failed banks have always been controlled by the corporate houses through proxies which were misused to channelize the public funds, held by these banks, for furthering the business interest of preferred corporate empire. At the same time it also remains a hard fact that Indian PSBs, on the instruction of RBI, have always acted as the Nilkanths of modern era drinking the left over poison of failed private sector banking in last 48 years. This action of taking over of failed private sector banks was prompted to ensure that the confidence of people is not shaken on banking industry which is a mobilization tool for idle public wealth to be used for social development. There is no denying to the fact that PSBs including PNB have been able to absorb the shocks, as a result of occurrence of frauds in past, with the help of its robust internal risk management system put in place yet the governance issues need to be addressed to plug the gaps so as to allow PSBs function as autonomous institutions exhibiting professional attitude rather than lax government departments. The present Risk Management system has been a reaction after RBI woke up to menace of increasing number of frauds in Indian financial system which was classified as one of emerging threats in its recent published financial stability report. Hence this risk management system needs to be upgraded regularly. It is to be noted that there should be no pressing of panic button in the Indian banking industry regarding security of deposits held by PNB or other PSBs at this stage. However a number of steps need to be taken to make the situation clear in the minds of citizens which are in a state of confusion following the debates of electronic media where every Tom, Dick and Harry have suddenly become experts on Indian or world finance system. In this direction a few suggestions can be made;
* To assure the masses regarding security of their wealth kept in banks as deposits.
* To start the process of fixing accountability and initiating of punitive action within or outside without protecting the holy cows of the system who may have political backing
* To counter the campaign of privatization lobby, for their hidden agenda, which is bound to hijack the narrative in garb of criticism of public sector.
The public at large must know that handing over the custody of public wealth stored in banks to few capitalists in the society has never been a good experience around the world instead the custody with representatives of public governments having robust accountability mechanism has always paid dividends in social development.
(The author is Secretary General Jammu and Kashmir Bank Officers Forum)
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