POOR TRAINING, STAFF CRUNCH, WEAK OVERSIGHT PULL DOWN PSBs
The fraud perpetrated on Punjab National Bank (PNB) once again brings into question the lax processes and systems in public sector banks (PSBs), but bankers say there are a number of reasons why it was always PSBs that seem to be affected, whereas private and foreign banks appear to be the most efficient.
While there is no denying that the quality of supervision in some PSBs is far inferior to other banks, not all banks can to be painted with the same brush, according to bankers. Besides, if a bank’s system itself is bypassed by fraudsters, nothing much can be done by internal controls, bankers say. And if the fraud is non-fund based, it takes many years till the chickens comes to roost.
PNB has remained one of the major banks where systems and controls have never been strict. The bank has been repeatedly hit by fraud, in recent times by Winsome Diamonds (~70 billion), and Zoom Developers
(~30 billion). Surprisingly, on both occasions the fraud was perpetrated through the bill discounting route, and yet the bank did not tighten its processes. Besides, in the 1990s PNB’s foreign branches had to be taken over by State Bank of India because of a fraud on the intervention of the Reserve Bank of India (RBI).
Still, there are particular reasons why PSBs always seem to be hit by fraud.
To start with, about 70 per cent of the banking system is controlled by public sector banks, and by extension, most frauds are tilted towards these banks, say bankers.
Besides, the quality of employees that PSBs attract is not always top grade, and the compensation paid to them is a pittance. For example, a clerk in a PSB earns
~20,000 a month and hikes are every five years, whereas a probationary officer starts at ~30,000.
Top brains, therefore, are reluctant to choose banking as a career. Private sector banks offer chances of rapid growth, albeit in a high pressure environment.
“Earlier, banking was the only decent choice, now it is one of the last.
The calibre of the staff we observe now is quite low,” said an executive with a public sector bank.
PSBs are also severely understaffed. And this hinders proper training.
“The priorities of branches are different from those of the head office. It is a rule that we need to send everyone for two years of training. But If I send one of my tellers, my operation is hampered. Thus, effective training never happens,” said the executive.
Even when the training is imparted, it may not add much value. “I was sent on a week’s training at a foreign location. It was more like a picnic,” the executive added.
And then, there are issues over the quality of business that the banks seek, particularly evident in foreign offices. Since Indian banks are not dominant there, and the branch manager is under immense pressure and the bank does business with poor quality clients. There is always a chance of fraud or bad debt in such cases.
Unlike retail-focused private banks, public sector banks extend large corporate loans. Banks such as State Bank of India, PNB, Bank of Baroda, Bank of India can afford to extend loans of hundreds of millions of rupees. Therefore, when there is a fraud or bad debt in these accounts, it always is large.
There are issues of under writing practices, which vary from bank to bank .“A State Bank of India will never extend the kind of loans that other banks in the system will be ready to provide,” said Pratip Chaudhury, former chairman of SBI.
“Banks vary in their culture as well. SBI has developed its culture, with better training and accountability, which many other banks lack,” Chaudhury said.
Fixing the processes, does not necessarily mean preventing fraud. “Processes cannot be completely systems-based, human intervention will always be a factor. If the government has to enforce stricter controls, saying only certain people will have access to data, that will only make the process more cumbersome,” said Deepak Bhawani, CEO, Alea Consulting, a fraud prevention consultancy firm.