Indian banking under a cloud

The Indian banking sector has reported its biggest scam. The banking system has been rigged again and the big fish are getting away right under the nose of authorities. Billionaire businessmen and diamond merchants Nirav Modi, Mehul Choksi and their accomplices have vanished into thin air and will taunt authorities from foreign lands after siphoning off billions, just like the king of good times Vijay Mallya is doing. Crooked fish in the banking system played enablers then, and are responsible now too. Punjab National Bank is the second largest public sector bank in India, and has reported a scam involving payments of Rs11.4 billion ($1.8 billion) to a handful of its elite customers. Modi, Choksi and their accomplices benefitted from the corruption that is endemic to the public sector in India. The banks in this space are reeling from the criminal onslaught as politicians revel in blame game without any real solutions on the table.

The banking sector is vital for the country’s economy and growth and yet it is plagued with a number of ills. State-run banks in India, in particular, account for a lion’s share of the industry but lack the autonomy needed to maintain clean operations. They have been supplying credit even to dubious clients, and suffer from NPAs, or bad loans. Many require recapitalisation frequently. Just last October the government decided to inject billions to keep banks going and recoup the losses made. Industry estimates put the total recapitalisation amount at Rs2.65 trillion over the last decade. Private sector banks, in contrast, are more circumspect, and therefore, don’t have that high ratio of bad loans. There is more accountability in the system of private banks. It’s not that scams don’t happen there, but the scale is far smaller. CARE Ratings, in its report, noted that Indian banks rank fifth globally for the highest amount of bad loans. As long as the government holds a majority stake and exercises control through it, there will be systemic flaws and more such scams to report. Privatisation could be a solution to such kind of woes. It would increase accountability and introduce stricter measures of governance. Hope this scam opens up a debate on this front.