An ocean of corruption:
known but ignored

Justice S.P.Bharucha’s unflattering comment on Indian judiciary came even as we were planning the bandwidth of our new column, ‘Bankwatch”. If, as the honourable justice had said, 20 per cent of the judiciary is tainted, what, we thought, could be the ratio for public sector banks and their executives? While the direct access to funds could be tempting in the normal course, the impetus for corruption also comes from the finance ministry and other power centres in New Delhi. Emboldened now by the former Chief Justice Bharucha’s outspoken remarks, we will, in this column try to look into the banking industry’s dark corners, which currently are safe, beyond the average radar reach.

While thanking His Lordship for his moral support, we wish he had qualified his blunt statement. Though there always were hush-hush hints at the judicial officers going wayward, Justice Bharucha’s was indeed a startling revelation. 

Justice Bharucha should know better. Being at the helm of affairs, and with unlimited powers, the Chief Justice of India does have access to information. Denied to mortals like you and me. We feel corruption, if any in the judiciary, is confined to its lower layers. At the higher levels, consisting of high courts as well as the apex court, the critical mass of incriminating evidence is thin. 

That is the considered opinion of people closely following court cases and judgments for professional evaluation. Almost every major judgment tends to create the impression that justice is being done. And justice has also been seen to be done. Even where the judgments are overturned by the higher courts, a lay reader could never find fault with the impugned orders. Consolation enough in the Indian polity. 

It is not Justice Bharucha alone voicing concern over rampant corruption. Mr.N.Vittal Chief Vigilance Commissioner, returns frequently to deal with the theme of which he calls “a direct index of the lack of good governance”

Writing in the Economic Times recently he called for requisite changes in the Banking Secrecy Act to break the nexus between corrupt politicians and corrupt bureaucrats. The basic reason, he wrote “why corruption flourishes in our country is because the way our democratic system operates. All political parties are dependent on black money” and this is the “political corruption, bureaucratic corruption and criminalisation of politics”. 
However, our column is on banking. With which area we are familiar. For banks we would reverse the ratio which Justice Bharucha has offered. At the higher levels of the banking industry corruption is rampant. Many of those who left under the much-hyped VRS were those without access to the gold mines. As per gossip in the banking circles, six executives, retired all, from a single bank, welcomed the Voluntary Disclosure Scheme, generously offered by P Chidambaram as finance minister. The small list includes two executive directors and four general managers of the bank which carries an overseas label. There could be more.

All the same, we do not share the view that the Indian banking system is weak. Considering its spectacular growth mainly in the number of branches and deposit mobilisation in the last three decades, the industry’s minus points should fade into insignificance. Corruption gained entry for structural reasons. 

In the first instance, payments for promotions. Often to the political leaders and their sidekicks. In our case studies, we came across a price tag of $100,000 to $200,000 for promotion to the level of executive director. In one case, the manager was suspended (and then dismissed) as a scapegoat. As for MD’s post, the rate ranges from $0.5 million to $1 million. Extra for after sales service. Bank executives could be seen running helter skelter at election time. Our coming editions will tell you how, when and where.

As we understand, over 60 candidates (general managers) have been called for interview for the post of executive directors in various banks. Given the past record, the amount of black money flowing into the private and party coffers could only be imagined. The mid-stream transfer of CMDs is another source of filthy lucre. The demonstrated flexibility of the finance minister has only stalled the momentum of the process.

Juicy stuff aplenty. One Time Settlements (OTS) for instance. What is settled between the bank and defaulter is often more than what is signed for final payments. Half of the “discount” is divided up. Each one, from top to bottom, getting a share. Even non-performing assets are “yielding” as a rule. 

Many executives have vested interests in keeping a few NPAs live. The defaulters may be dodging payments to the bank. But they tend to keep the executives in good humour. As an insurance premium. For the executives it comes handy as speed-money is needed for promotions and household purposes. A Kolkata NPA case does just that for a Chennai based bank. The company owes the bank $25 million. At least a couple of GMs and a DGM are famously ‘in the pay’ of the firm. Both of them were posted in Kolkata as Chief managers. Now they are queue for promotion.The Kolkotta firm figured in the list of eight defaulters revealed by the bank to a section of the press recently. Two as executive directors and the other as general manager. That bank is not alone in having such stand-by arrangement for executives. All sail in the same boat.
We, however should not be mistaken. The exposition of the subtle ways of corruption indulged in by banks and bankers is not our sole aim. It is done only to bring public attention to the seamy side of banking which would otherwise go unnoticed. Our idea is to try our little best to put Indian banking industry on a high pedestal enabling it to discharge its responsibilities to the nation in the challenging days to come. 

The nationalisation of the banks in 1969, despite the criticism it provoked, was a most imaginative step forward. Otherwise, it is common knowledge, many of the banks now ruling the roost would have hit the dust in the early 1970s. Even the biggest ones would have gone. In just 15 years the country made great strides in boosting population-per-branch to record levels. With ever-rising benchmarks for deposit collection.

But the banks let down the country. May be, manipulated by wily politicians. Even so, it is wrong to underestimate the banking industry’s growth and achievements. Things would have been much better if the industry’s restructuring was thought of (and taken up) in 1985 when their branch expansion targets were realised by the public sector banks.
 
That did not happen. In the process, the horizontal growth set the stage for the free play of corrupt and corrupting elements. If 20 per cent of the judiciary is corrupt our ratio (80 per cent) holds good for the banking industry. 

Its major causality was the entrepreneurship in the country. With the globalisation process on, what we should worry along is not the revival of the capital market. More important is the revival of entrepreneurship. The banks indeed are not the only culprits. Government policies, traditional industrial houses ill-informed politicians also had a role. As it is, banks are the only hope for playing a constructive role to rescue the embattled economy.

Even as this round-up is keyed in, comes the scandal emanating from the Punjab Public Service Commission. The full amount of money squirrelled away by its former Chairman is yet to be estimated. However, as per latest reckoning, the loot has crossed the $20 million mark. We feel further emboldened by the disclosures.

For, under law (or in theory, at least) the Public Service Commission’s fiefdom is independent. The appointment of its members and the chairman is irrevocable. That means they are not beholden to the godfathers who took the initiative in nominating them. The chairman and members of the commission could, if they wanted, ignore the behests/entreaties of politicians in the selection process. Though at times it may be difficult to ignore old attachments.

As for Ravindra Paul Singh Sidhu, he did not even call on Mr.Brar, the then Chief Minister who waved him in. So it is yet to be established whether he was collecting money for himself or for the ruling party (Akali) benefactors. In our case that is not the point.
Unlike the chairman and members of the Public Service Commission, the bank executives need extra-curricular backing right from the start. Mainly for the climb up the industry’s greasy career pole. And they have funds on tap. Accounts under their control can be (and are) manipulated in umpteen ways. Raising no suspicion clouds.

All these are the talk of the town. Of late gossips are more transparent than ever before. Allegorical references done away with. An insight into the modus operandi in each case is also available to those having no hearing complaints. All taken as business as usual. The latest buzz is on the proposed shifting of two CMDs in the wake of the vigorously fought Assembly (UP especially) election. Observers of the banking scene see an invisible link between the transfer of a couple (or three) non-performing accounts (NPAs) from a north-based bank followed by the reported MoF OK for shifting of two CMDs to their favoured banks. The transfer was coming within less than a year after their elevation. The plan was aborted for different reasons.

Of late a dangerous trend has taken hold of the Indian banking industry which is to supply oxygen to the economic system. Bankers across the country tell their clients that risk-taking is now in the realm of venture capital. While they are supposed only to collect their wages, increments and ensure their promotions – by hook or crook. As a result both credit and deposit growth rates have declined. The US example is often cited.

This is quoting instances out of context. True, venture capital and junk bonds accelerated the restructuring of the US industry and the economic boom that followed it. Both venture capital and junk bonds came into being and played their crucial role only under a low interest rate regime. Also when inflation was effectively under control. Unthinkable in India so long as the banks find the government securities the only mode of investment. High time the 25 per cent cap on much investment is enforced.

As it is, business-wise most of the banks oversee funds larger than that of several state budgets. But budget formulations are well debated by the state legislatures and others. Hair-splitting arguments rage over the allocation of even insignificant sums. For banks no such thing. Except a few RBI inspectors and the so-called RBI rules. Taking into account their development needs it is high time that the state governments should obtain a say in the running of the banks.

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