Tackling Corruption in Banking

Riyaz Ahmed Bhat
An American proverb states that if you owe a hundred thousand dollar to a bank then bank owns you and if you owe a bank a hundred million dollars then you own the bank. This proverb is depiction of allusion of the dangers emanating for the banking sector from crony capitalism. But  we have often  observed that high ticket clientele in the banking sector after resorting to corrupt practices have inflicted heavy damage to the industry wherein various banks have suffered financial and reputational losses besides various bank officials being punished for the crimes of connivance and conspiracies against state economic interests.
Continuance of corrupt practices in a financial system of any country has always remained a concern for authorities as it is deemed to be major internal threat to economic sovereignty of any state  hence law enforcement agencies and central banks, the regulators, of various countries have always shown prime concern in tackling this menace. In banking industry where money is the raw material which is mobilized in form of  investments, deposits and borrowings the probity of conduct by the professionals managing this raw material is crucial. This has been brought into focus internationally after the subprime crisis of 2008 when conduct of many top ranking executives of financial institutions came under question. However, in India such a situation has been highlighted repeatedly on various occasions in past. The hue and cry usually raised after scams or frauds dies with the passage of time only to be raised once another scam surfaces. Culmination of investigations in various scams has revealed that in banking sector culpability of several bank staff was ascertained by investigative agencies. Also in other various frauds detected in financing of corporate projects the conduct of appraising or sanctioning authorities in banks has come under scanner of local police, Central Bureau of Investigation(CBI) or Serious Frauds Investigation office(SFIO) and  such cases include the loans advanced to Kingfisher Airlines, REI Agro and several other real estate projects. In these cases the exposures, taken by the lending banks, have been declared as frauds by RBI because RBI investigation has also unearthed that several checks and balances to be observed during financing of corporate proposals have been compromised. This RBI observation is speaking a lot about probity of conduct by concerned bank officials involved in appraising and sanctioning of these corporate proposals. The most worrying part of the story has been in the recent episode when CBI started prosecution of former Chief Managing Director (CMD)s of two big Public Sector Banks(PSBs), CMD of Syndicate Bank for bribery and CMD United Bank of India for possessing disproportionate assets to his known sources of income. This episode is an exposure of the prevailing rot in higher echelons of managements of the PSBs. The happenings have brought in focus not only the simmering governance issues in the banks but also integrity issues of bank employees and their top management alongwith board of directors of several banks. These issues of governance and probity of professionals, in Indian banking industry, had been already under discussion following the accumulation of large NPA credit portfolio of the banks. This accumulation is perceived to be result of exposure taken by the banks in unviable gold plated projects of corporate India, cleared by bank managements, without adhering to basic principles of lending. Statistics have always shown that a good number of these unviable projects when put to forensic audit by professional auditors reveal that actually there has been a dereliction of professional competence executives or board members of the banks, vested with delegation. This dereliction includes in sanctioning of loans and clearing of restructuring of loans of already financed projects.
Going through the data released by Central Vigilance Commission, Central Bureau of Investigation or National Crime Records the questionable behavior amongst bank staff has come to light irrespective of the positions they hold in the heirchy. It starts from lowest like peons to highest in governance structure which includes CEOs or the board members. In some cases even CEOs and MDs of some banks  are under scanner of investigative agencies and are likely to be charged for the acts they may have committed while holding their official positions. Though most of the times these types of investigations are reported in public sector banks yet private sector cannot be considered as saints of industry. The conduct of CEO Bank of Karad and Global Trust Bank are still fresh in minds of Indian citizens. usually the officials of PSBs are prosecuted under various anti corruption legislations of Indian constitution by investigative agencies but recent Supreme court decision in case of CBI V/S Ramesh Gelli & others has also opened the way for prosecution of private sector bank employees or executives by these agencies. This has put to rest the controversy of definition of a public servant.
In recent past there have been certain reform initiatives undertaken by RBI wherein the core issues of probity of conduct by top management and board of directors, of Banks in India, have been addressed. These reforms included fixed tenure of bank chiefs, making directors responsible for reporting of misconduct or dubious conduct in performance of their duties including sanctioning of loans. These were as per the recommendations of a RBI committee, constituted to examine the issue of enforcing the transparency in functioning of banking institutions. However, these recommendations have been put on hold due to opposition by various quarters. Going to the resolution of the issue of tackling corruption in banking it is a fact that menace prevailing in the industry cannot be studied in isolation. We must come terms to the situation that the selection of top brass or lower cadre in any governance system comes from the reservoir of citizenry and their probity of conduct is manifestation of overall social conduct of the individual members of that society. The recent report of transparency international putting India on S. No.81 in corruption index with 36 points is an eye opener in this regard. There can be numerous excuses for us to defend ourselves on this front but the fact remains that the main reason for such poor rating can be attributed to love of Indian citizenry for accumulation of money from various sources without having a concern whether it is legitimate or illegitimate. To confront this menace and maintaining of probity in governance in general and  banking in  particular should come in a holistic approach keeping in view this mentality of common masses. For the purpose several measures can be initiated around the main concept based on encouragement of honesty and having an intolerant approach for corruption. These steps include
* Making citizenry to declare their source of assets accumulated during their active working life.
* Strengthening of anti corruption legislations like Right To Information increasing their jurisdiction over private sector and self employment affecting public welfare.
* Strengthening the legislative and executive mechanism for protection for whistle blowers who take head on the corruption within the system.
* Curtailing of entry of convicts of economic offences into the state/corporate governance system by having a strong deterrent for them in electoral democratic route.
* Fast tracking of the criminal judicial adjudication to avoid delay in deliverance of justice ensuring conviction of wrong doers at an earliest.
These may be small baby steps in direction of weakening the demon but will go a long way in beginning of a thousand mile journey towards a transparent financial system adhering to standards of probity of individual conduct in corporate governance.
(The author is Secretary General Jammu and Kashmir Bank Officers Forum)
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