The next time you go to a bank and find a pen worth the princely sum of Rs. 2 dangling from a string at the counter, you are bound to remember the Rs. 11, 500 crores that the nephew-uncle duo of Nirav Modi and Mehul Choksi managed to polish off neatly from the Punjab National Bank (PNB) before fleeing the country, the Rs 3, 695 crores that Kanpur based promoter of Rotomac pens Vikram Kothari swindled from Bank of Baroda and the nearly Rs. 9, 000 crores that Kingfisher boss Vijay Mallya defrauded SBI and other banks of before scooting to London and taunting the Government of India and feel like you a thief while the worthies mentioned above are all ‘celebrities’ rubbing shoulders with the high and mighty. “Why is it that banks are all caution while dealing with honest small customers while generously opening their chests to the crooks of the world throwing caution to the winds?” you are bound to wonder.
The back-to-back frauds that have come to the fore in the last few days – and the many more that are bound to be unearthed in the coming days – disturbed anti-tobacco activist Md Imran Ali enough for him to recount, in a heart rending Facebook on Monday, his ordeal of how he ran from bank to bank, both public and private sector, from Bhubaneswar to Bhadrak, his native place, in 2006 to avail a study loan to pursue a course in Master of Social Work (MSW) to no avail. He got his loan only after the then President, the godly Dr. APJ Abdul Kalam, intervened following a mail sent to him by Imran. He repaid the loan carrying an interest rate of 14.5% in three and a half years, a full year and half before time.
Imran was lucky. But one shudders to think how many of our bright young boys and girls keen to make a career must have been turned away by banks, which unhesitatingly roll out the red carpet to the crooks of the world and are more than keen to lend them as much as they want without any collateral security. The dreams of the aspirational youth are shattered by the same banks that feed the fantasies of Mallya & Co. Farmers are forced to commit suicide for their inability to repay a loan of a few thousand rupees even as banks continue to write off bad loans worth several thousand crores given to the likes of Mallya, Modi and Kothari as non performing assets (NPAs) – that innovative term coined for loss – year after year.
The thing to note about almost every major bank fraud that has taken place in the country since the Harshad Mehta heist in the 1990s is that the victim banks have invariably been public sector undertaking (PSU) banks. Rarely, if ever, has a private bank suffered a major fraud of the kind that appears to be routine in PSU banks. “That’s because officials in a private bank stand to lose everything – their increments, promotions and at times even their jobs – if they are found guilty of sanctioning a dubious role. In contrast, officials in PSU banks have nothing to fear. They continue o get their salaries, promotions and other benefits even if they are responsible for bad debts worth crores,” reveals an insider in the banking industry. Accountability, he says, is alien to PSU banks.
There lies the whole problem. Secure in the knowledge that nothing would ever happen to them and the government of the day would always bail the bank out, officials in PSU banks have no incentive to be cautious while sanctioning loans to companies. In sharp contrast, a private bank officer would think a thousand times before advancing an unsecured loan because s/he stands to lose everything if something goes wrong.
As Imran’s ordeal shows, the objectives behind the epoch-making decision of Indira Gandhi in 1969 to nationalize 20 leading private banks have been met more in their breach than their realization. Nearly half a century after the decision, banking remains a far cry in the hinterland. Farmers, students and small traders needing small loans continue to be spurned by PSU banks that are ever eager to indulge big – and often fraudulent – corporate houses. When these ‘small timers’ do get a loan, their life is made miserable by banks if they default on one installment while big business laughs all the way to the bank without repaying a single installment.
It is abundantly clear that not one of the objectives behind the nationalization of banks has been fulfilled. So why should we continue to have PSU banks that splurge hard earned taxpayers’ money to finance Vijay Mallya’s swanky lifestyle in London while denying a much needed small loan to a student, farmer or trader. At a time when the government is talking in terms of privatizing something as important as Indian Railways, is there a single justification for not privatizing ALL PSUs?
But try telling that to our politicians and they would come up with 101 reasons why we need to persist with PSU banks. That’s because more often than not they are the beneficiaries of bad debts, apart from the fraudsters and a few corrupt bank officials. It is time that all PSU Banks are privatized with the proviso that they have to advance a certain percentage of their loans to the needy. If they are unable to repay for some genuine reasons, the governments can always bail them out – as it already does in case of PSU banks. Doesn’t the government waive loans worth thousands of crores to farmers when they suffer crop loss due to reasons like drought, cyclone, pest attacks and so on? So why can’t it do the same in case of private banks?
The fact of the matter is, a loss in PSU means profit for many people. That’s why they have a vested interest in perpetuating PSUs. That’s the reason the Modi government tweaked the Rafale deal to eject Hindustan Aeronautics Limited (HAL), a leading PSU with the proven expertise in making the components, and brought in the Ambanis with zero experience or expertise in such things. That’s the reason the government is reluctant to privatise Air India, the PSU behemoth, despite mounting losses and rapidly shrinking share in the skies even after massive bail-out packages.
There is absolutely no need to set up another of those ‘expert committees’ to look into the issue of bank privatization. Enough is already known why the decision does not brook any further delay. Refusal to do so would be a fraud with the people of the country.
(DISCLAIMER: This is an opinion piece. The views expressed are author’s own and have nothing to do with OTV's charter or views. OTV does not assume any responsibility or liability for the same.)