In the public spat between Reserve Bank governor Urjit Patel and the government over the loss of nearly Rs 13,000 crores in the Punjab National Bank scam, the lapses in the functioning of top finance ministry officials must also be in focus. The RBI’s action banning all letters of undertaking (LoUs) and letters of comfort (LoCs) is like throwing the baby and the bathtub out of the window, and hints at lazy regulation. It is harming exporters and importers and the jewellery trade, one of the country’s important foreign exchange earners. The question of whether it’s the RBI or the government that is more to blame for the PNB scam will be decided by experts, but it’s undeniable that the buck stops at the government’s door. It is the majority shareholder in the bank, so its duty to protect shareholders and depositors is doubled.
The finance ministry’s mandarins appoint the bank chiefs, so they can’t be absolved of responsibility when frauds occur. In PNB’s case, a few low-level officials have been arrested, but the big fish have been allowed to go scot-free. This is a frightening pattern that seems embedded in the banking regulatory system. One report claims there were over 25,000 bank fraud cases till December 2017. An RBI report observes that as many as 5,200 PSU bank officials were punished for fraud in 2015-2017, or in other words at least one banker on an average is caught and punished for fraud every four hours. One doesn’t know how many are chairmen or managing directors. Why is it that top officials remain unscathed? Are they made of teflon? Isn’t it their duty as custodians to ensure that the people’s money is safe.
In PNB’s case, it’s said the RBI had during inspections pointed out the irregularities it saw in some transactions and the bank’s own auditors did the same, but no action was taken. The reality therefore is that the RBI can point to the shortcomings and require promoters and directors to meet the “fit and proper” criteria, but at all times it has to depend on the government to ensure that it is done, as it’s the government which has the last word. While the blame game goes on, it’s necessary to tighten the regulatory system and block loopholes that facilitate malfeasance on the part of bank employees. Frauds will continue in the banks as long as powerful officials in the finance ministry in charge of the banking department and heads of banks are allowed to go free of responsibility. The government must also redefine the role and powers of its directors on the boards of banks. So far, they seem to have been acting as “sleeping” directors, keeping their eyes firmly shut as powerful rogues pilfer the banks.