by

Rajesh Goyal

When the news about Cobrapost broke on TV channels, I received call from a leading newspaper correspondent about my views on Cobrapost sting operation and prevalent practices in banking.   Having worked in PS Bank for over three decades, usually there is a automatic tendency to defend and play down the malpractices in banking industry when some outsider asks you such questions.   However, I fumbled this time and could not do so this, as the sting was not against one bank but covered at least three banks (may be more banks be exposed in future) and it was not confined to one region, but it covered across India.   I would like to share here few things which I could not share with the press as non-bankers will find difficult to appreciate the constraints under which bankers are working these days.

At the outset, let us admit that what Cobrapost has exposed is not new for the bankers.  Now the next question is whether all bankers indulge in such practices?  The answer is big NO.  A vast majority of bankers do adhere to norms and guidelines of RBI and other regulators.    Then questions arises why should RBI and MoF needs to worry so much for such practices if only a small %age do not follow guidelines.  Let us make a deeper analysis of the malady.

First of all, bankers can be broadly categorised into (a) PS Bankers (b) Private Sector Bankers.  

In Private Sector banks we have young (or call them inexperienced) bankers who are recruited based on their aggressiveness in marketing.   They treat banking too as a kind of any other business and are directly or indirectly tutored to go for the kill if it can result in profits for the bank and incentives for him or his bosses.   These young bankers in private sector banks are groomed to bring deposits by hook or crook methods and sell aggressively third party products based on commission / incentive basis.  Like most of our businessmen, even these private sector bankers are never sensitized for their duty towards nation and are assured of no action if they adopted some unethical methods to bring cheap deposits.   

In Public Sector Banks, there is always some resistance by at least some experienced bankers for adopting unfair means to get their business grow.   However, we have a small group of flatters and corrupt officials who are always ready to bend backward to please their bosses and bring business by adopting unfair methods and violating RBI norms.   In Review Meetings, these kind of bankers are praised profusely by Circle Heads / Regional Managers / Zonal Managers for their "innovative" methods to bring more business.   Honest bankers are made fun and told to learn from 'growth oriented' colleagues.   Bankers who wants to follow strictly RBI / bank guidelines are ridiculed by corrupt senior officials and are asked "Kye sari honesty ka theka tumne le rakha hai".     More sophisticated CMDs / EDs / GMs while reviewing the targets tell the non-achievers and honest bankers to 'change with the time', thereby meaning that you too need to adopt corrupt, dishonest methods and violate RBI/Bank guidelines to achieve the targets.     In public messages, they will always profess to follow RBI / bank guidelines.    In case anything is pointed in audit against these 'growth oriented' bankers,  then Circle Heads / General Managers / EDs / CMDs go out of the way to drop such objections (sometimes poor auditors are also victimized in the name that they are putting hurdles in the growth of the bank). Thus, everything goes on smoothly for such corrupt officials and they promotions.     This is only a small %age of the total bankers.   However, the worrying part is that it is only this group gets priority in promotions and ultimately 80% of the people who reach General Manager / ED / CMD in public sector banks too have directly or indirectly indulged into such practices at one stage or other, and had encouraged the people who indulge into such practices.   You ask any junior or middle ranked banker, he will vouch that such instances  are common in the Review of Manager's Meetings etc.     

AllBankingSolutions.com has been writing about the malpractices in the banking industry.   (We do not have enough funds to carry any sting operation).  I am giving below few links from old articles wherein AllBankingSolutions.com have taken up the need to tackle the issues now exposed by Cobrapost.    However, neither RBI nor MoF seems to be interested in checking these malpractices.

→ Banks  Must  STOP  Selling Gold Coins, Mutual Funds, Mediclaim Insurance etc.   by Rajesh Goyal    (uploaded on  12/10/2012)

→ Window  Dressing in Banks  -  Dishonest Officers Get Promotion; CMDs and EDs Get Monetary  Benefits BUT  Honest Officers / Staff Get Lower Salary Increases by Danendra Jain (uploaded on 05/05/2012)

→  Face Regular Transfers and Rejection in Promotions  IF YOU  TRY  TO  PUT  HURDLES  IN  LOOT  OF YOUR  BOSSES  by Danendra Jain    (uploaded on  16/10/2012)

→ Who is responsible for Rs 32,000 crore scam in Currency Derivatives to corporate by Indian banking sector? Are Penalty of Rs 5 to 15 lacs (That Too To Be Paid from Shareholders Funds) sufficient for such Big lapses by Board of Directors, CMDs and EDs of  Private / Public Sector Banks - RBI Needs to Introspect. (uploaded on 13/12/2011)

Now question arises,  what needs to be done immediately.  

First of all,  RBI can NOT absolve itself by saying that it has issued the necessary guidelines for KYC.   As a regulator, it needs to conduct regular audit of banks to find our such malpractices and unethical methods adopted by senior corrupt bank officials  for so called growth of the bank.     If any irregularities are traced, RBI needs to penalize heavily the defaulting Banks and take action against the top brass of the bank rather than suggest action against junior officials.    It has been observed that RBI does not take strict action either against Banks or the top brass even when large scale scam is noticed, fearing that it can lead to instability of the financial sector in India.   This encourages the private sector banks and top brass of public sector banks to encourage open defiance of RBI regulations.   I still remember that in case of Rs 32000 crore Derivative Scam, banks were penalized for Rs 5 lakhs to Rs 15 lakhs only.    RBI has tried to absolve itself by showing that it has taken the follow up action, which was not in line with the magnitude of the scam and no heads rolled.    I am fearing the same once again.   

I would like to quote here a recent news (12th March, 2013) in TOI under the heading " Rs 2,800 crore penalty on telecom companies for 19L fake SIMs"  In this case Department of Telecommunication had imposed fine of Rs 2,800 crore on telcom companies for their failure to follow KYC norms for issuing SIM cards.   Why RBI does not put such heavy penalities on banks who grossly violate KYC norms.    Had RBI imposed penalty of Rs 1000 crores on defaulting banks in Derivative scam and ensured that few CMDs / EDs were punished,  it would have sent shivers among the corrupt bankers who are ready to violate the guidelines of the regulators as they are aware that penal actions are toothless.     RBI needs to learn from DoT and show that it means what it professes.  ICICI bank has suspended 18 junior officials because they have been caught on camera.    Is it possible that so many officials across India toe the same line without the patronization of top brass?   This is not an isolated incident but malpractices are  prevalent across country in banks now under scanner.   Why ICICI Bank and RBI are shy of taking action against top brass.   Delay in action by RBI will mean allowing the corrupt officials to wash out the evidence.

Secondly, RBI needs to ensure that banks stop selling Third Party Products like Insurance Policies, Mutual Funds, Gold etc.   In this regard, I have already expressed my views as mentioned in the above referred article.   Encouraging sale of gold has already created problems for the country due to higher deficit financing.    If RBI does not take proactive action in this regard,  banks (including PS Banks) will continue to sell these products  to people who are looking for laundering their  Black Money,  as businessmen/politicians,  provides these corrupt and their bosses more money in the shape of commission / incentives - including foreign free trips.   The bankers are encouraged by top brass to sell these products  even through dubious means as they want to enjoy share in the booty.

Thirdly,  bankers need to take pledge that they will put interest of the nation above the interest of the bank.   Bankers should ensure that they do not encourage the conversion of black money into white money by their acts, even if they fail to meet their internal branch targets.    The businessmen / politicians who come with huge cash should be discouraged for banking transactions and MUST be reported as per guidelines of the bank / RBI.   If businessmen bring fabricated Balance Sheets for loans, they should not accept the same and expose them by bringing out inconsistencies.    If Bankers keep their eyes open and report all dubious transactions, India will certainly become cleaner at a much faster rate.   Don't encourage lending if is merely to help the businessmen to establish his credentials by showing some white money from banking channels.   You should not be part of the system which encourages corrupt businessmen / politicians.  

Fourthly, Bank Boards to ensure that promotion processes encourage honest and diligent officers rather than corrupt officers who achieved targets by hook or crook or by using dubious means and by side tracking RBI / Govt laws and guidelines. 

Undoubtedly above is a great challenge and soon people will forget about the above sting operation.   Will RBI Governor, Mr SubbaRao rise to the occasion and put certain check and balances in place which will ensure that top brass of the bankers do not encourage such activities and Banks which have violated the norms are punished in a way which acts as a deterrent and not as encouragement?