In India, there is no paucity of credit, technology, skill or innovation. What is lacking is the will to ensure that bank credit serves the ultimate purpose
We can’t jeopardise the future of one business to save the other. Similar is the case with the banking system that runs on a few ethical principles. If a person commits fraud by submitting spurious documents, declaration or statement of his/her account, he/she should be treated as an economic offender. By committing fraud, one not only cheats the bank but also puts people’s hard-earned deposits at risk. Millions of poor, pensioners, widows and workers of the unorganised sector keep their hard-earned money in banks with expectations that they would earn interest and would get their money back whenever they need them. Banking business actually thrives on people’s low-cost current and savings account deposits. It is another matter that the Reserve Bank of India (RBI) keeps reserves to protect the banks from crisis, which safeguards people’s deposits. Given that the Indian banking sector is fast integrating itself into an unstable global financial system, reserve funds always work like cushion.
Over the years, a large number of scamsters has taken undue advantage of banking loopholes to run away with huge credits. As per RBI data, as on September 30, 2017, there were 5,879 reported incidents of frauds amounting to Rs 32,048.65 crore in 2017-18. Gross non-performing assets (NPAs) in banks stood at more than Rs 7.34 lakh crore in September this year, according to ratings agency ICRA. The need, therefore, is to strengthen the law and put stringent guidelines for wilful defaulters who try to break the very backbone of the country’s financial system. In doing so, they also create trust deficit between banks and borrowers that adversely affects the credit cycle of the banks. Experts have suggested that the public sector banks (PSBs) be privatised. In reality, the workings of PSBs are entirely different from the private sector banks — it has a wide network to reach people in the remotest area. PSBs face tough challenges, like political interference at the village level, manpower shortage and pressure to meet social sector objectives. On the other hand, private sector banks have better operational efficiency, investment skill and less response time. Nevertheless, both have their strengths and weaknesses. Privatisation of the PSBs is not a sound option but an escape from the difficult task of reforming the banks itself.
Professional CEOs, equipped with updated management information system, effective board of directors, sound HR policy, state-of-the-art internal and concurrent audit system, dedicated asset supervision mechanism and a detailed information structure can prevent frauds and reduce NPAs. Equally, banks must pay more focus on fraud prevention measures than post-fraud correctives. A new mechanism must be adopted to judge the reporting, communication skill and decision-making capacity of the employees. There is also an urgent need to stop the practice of giving incentives to the CEOs so as to achieve desired targets. Many PSB chiefs are known to put pressure on the entire staff. This results in oversight, leading to frauds. All kinds of post-retirement assignment should be stopped for the good health of the banking sector.
Defaulters of the likes of Nirav Modi, Vijay Mallya and Mehul Choksi among others could not have duped the banks had their boards, audit teams, supervising officers, loan review committee, asset verification teams, information system auditors and CEOs worked in tandem. Few banks conduct dedicated physical verification of assets, which in many places invites risk. Here, the Government must provide adequate security to the bankers. Physical asset monitoring is a must for banks. Over the years, bad loan in the agriculture sector has witnessed an alarming increase from Rs 24,800 crore in 2012 to Rs 60,200 crore in 2017 due to loan waivers, poor credit end use, unviable methods of agricultural practices and lack of dedicated research and planning. Politicians desperately cling to loan waivers for votes and cause immense damage to entrepreneurial life cycles. This creates massive idle energy across the country. Politicians should revive village ponds, wells, ground water, bio-diversity and above all natural agricultural practices. Subhash Palekar, agriculturist and research scholar, has revived natural agriculture practices free from all kinds of pesticides. His model works well in villages with rich bio-diversity, which helps increase the farmers’ income in order to help save banks from a defunct credit cycle in rural areas. There is no paucity of credit, technology, skill and innovation in the country. But there is lack of will to ensure that bank credit serves the ultimate purpose.
(The writer is a freelance commentator)