Now, private banks too are getting tarnished

Stories about wheeling dealing that managements of private sector banks have indulged in have suddenly put dragged such banks into the spotlight. Hitherto, the focus was on mismanagement of public sector banks (PSBs). Private bank managers could look down smugly at PSBs and sneer. Most analysts had even begun to demand privatisation of PSBs.

But all that changed once the dealings between India’s largest private bank, ICICI, and a defaulter like Videocon, came to light. More distasteful were disclosures that many of the deals had been done by relatives of the bank’s ceo, Chanda Kochar.

All of a sudden, PSB Unions — under the umbrella of All India Bank Employees Association (AIBEA) — had something to hit back with. They came out with their own version of how government owned banks had not fared as badly as many thought (see chart). They pointed out, through their newsletter of 13 April 2018 (http://www.asiaconverge.com/wp-content/uploads/2018/04/2018), that between 1947 and 1969 (when some of the largest banks were nationalised) as many as “736 private banks had collapsed and closed down due to mismanagement”. Even after 1969, 36 private banks had collapsed or had gone out of existence by merging with other banks. The AIBEA has now begun demanding nationalisation of ICICI and Axis Bank.

Of course the AIBEA newsletter remains silent on how many PSBs also had to be merged because they were rendered unviable. It does not speak of the bailouts PSBs had received from the government time and again.

It must also be mentioned that the AIBEA newsletter does not include the money that Standard Chartered lent out to Essar, because of which government-owned oil fields managed by Essar Oil had to be sold to Rosneft of Russia. That is how the Ruias of Essar were bailed out. Stanchart and some private banks got their money, but PSBs, who had lent to the Essar group, were left holding the sack. Adding those figures could have swelled the figures for private sector defaults even further.

The AIBEA newsletter also does not refer to the government’s silence on the charges of massive money-laundering and siphoning that the Directorate of Revenue Intelligence had levelled against the Essar group vide their 384 page dossier (No.DRI/MZU/CI-11/2013-14 of 11 March 2015). Clearly, this is not just a case of NPAs. It involves diversion of funds as well.

Similarly, the AIBEA newsletter is silent about the innumerable real estate and other deals private sector managers of banks and mutual funds (MFs) struck to profit themselves and their families. For instance, many senior managers of private sector banks and MFs are known to have entertained cozy deals with real estate developers. The banks and MFs lent out money to developers, and in turn, got properties at discounts ranging between 40-50%. Many managers sold off their newly acquired flats immediately after they were purchased.

This is in sharp contrast to the investigations that fly thick when PSB managers enter into such deals. So why has the RBI/finance ministry not brought out guidelines on the way wealth garnered by a bank/MF manager’s family could be subject to audit scrutiny to ensure that such conflict of interest deals are not encouraged? After all, private sector banks and MFs pay their managers more than what PSBs pay. To try make more money is not just greed. It is a violation of banking norms.

Currently, it is premature to pin the blame on anyone, as investigations are still underway. But the few details that have emerged do paint a sordid picture of a weak regulator and collusive bureaucrats who choose to look the other way instead of slapping criminal charges against those who misappropriated bank funds and failed to repay them. It also points to the weak moral fibre of some of the seniormost managers of private banks whose greed made them blind to ethics and banking norms.

India, clearly, has a big cleanup job at hand. It must begin with ministers, bureaucrats, regulators and bank/MF managers. After all, no bank manager would have dared to lend to Vijay Mallya against the value of a brand name, unless someone in the ministry had given the manager the go-ahead. The AIBEA has to make this demand as well if it wants good banking practices to survive. The writer is consulting editor with FPJ.