Say no to populism

This refers to “Why is bad behaviour in FIs widespread” (February 4) by Debashis Basu. The bad effects of poor governance and oversight on the financial institutions, particularly in the case of banks have substantially eroded the market capitalisation of the institutions as well as that of the investors. Despite stipulating covenants to secure the lending, many a times credit was delivered without ensuring the compliance of the stipulated norms thereby exposed the institutions to losses. In order to ensure the oversight on the lending, periodical audits and inspections have been carried out. However, during the annual inspection of the banking regulator, it has been observed in the case of many lenders that they made large divergences and violations in the conduct of banking business especially in complying with the prudential norms on income recognition and asset classification.

The shadow banking sector is also not an exception. In spite of the oversight by regulators, many shadow banks display financial mismanagement and irregularities resulting in huge losses to the shareholder. Financial and accounting frauds are not uncommon. It is high time to book the authorities responsible for such losses to the stakeholders. Otherwise, the collapse of the financial system is not far away. The public sector banks become prey to the wrong policies of the government. Undue intervention by bureaucrats, politicians and corrupt bank men in credit management is responsible for loan frauds, and the rise in the bad assets of government-owned banks.

Lending systems and procedures must be overhauled to recognise malfeasance and book the conspirators early, and the government must stop interfering with the affairs of public sector banks.

VSK Pillai Kottayam