Banking ops must be transparent

Merely spending taxpayers’ money to recover written-off loans through debt recovery tribunals, without ensuring accountability of bankers, is like adding insult to injury

Last month, the government told parliament that our banks had written off bad loans worth almost Rs 10 lakh crore between 2017 and 2022. 25 corporations that had borrowed sums between Rs 1,150-7,100 crore each, topping the list of 10,000+ wilful defaulters, were also named publicly. Four days later, the government announced in parliament that banks had recovered Rs 6.41 lakh crore worth of loans written off since 2014.

Earlier in July, the government had admitted that India compares adversely with major economies like the US, UK and China in terms of the ratio of bad loans (non-performing assets, or NPA) to the total volume of loans advanced. What we rarely get to know beyond these bland statistics is the inside story of how banks assessed applications for loans that eventually went bad. Nor do we learn anything about the steps taken to fix the accountability of bankers who played around with our hard-earned money. Their statutory regulator, the Reserve Bank of India (RBI), has frequently resisted disclosure of details of discoveries made while inspecting their books of accounts, despite the Supreme Court’s multiple judgements directing transparency.

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While petitioners like Jayantilal N Mistry and Girish Mittal are struggling to get these transparency directives implemented, veteran transparency advocate Subhash Chandra Agrawal hit paydirt after eight months of effort. RBI reluctantly shared its inspection report relating to a private sector bank.

The report makes for interesting reading. RBI discovered that about 120 loans totalling Rs 1,583 crore were sanctioned or ratified by the MD & CEO or senior bank officials just before the end of FY2018-19 leaving very little time to assess the risks adequately. Fresh loans were sanctioned to borrowers who were already in the NPA category. One individual was advanced gold loans more than 100 times by classifying them as agri-jewel loans without ascertaining their end use. More than 1,400 immovable properties, which borrowers pledged as collateral security, were not revalued every three years as required by RBI guidelines. There is much more in the report that points to questionable dealings.

Such transparency is the first step towards fixing accountability for NPAs. Merely spending taxpayers’ money to recover written-off loans through debt recovery tribunals, without ensuring the accountability of bankers, is like adding insult to injury.

Why are bank inspection reports not publicly accessible despite repeated rulings of the Central Information Commission and the apex court since 2015? RBI takes the technical plea that the banks were not made a party to these matters and must also be heard. However, a weightier argument against disclosure it has employed is that banks have a trust-based relationship with their borrowers and disclosure of information amounts to breaching their fiduciary obligation to keep it confidential.

We must ask now, if banking operations are indeed based on trust, why do they demand Aadhaar number, PAN number, residential address proof, etc., from depositors, not just at the time of opening new accounts but also periodically thereafter? Why do they not simply trust the information we fill up in the application forms?

Further, if we concede it is a trust-based relationship, then banks have a greater fiduciary duty of transparency toward their depositors than toward borrowers. Given this, to save the economy, we must demand greater openness in banking operations. Government must urgently make a policy decision to stop treating such information as sarkari secrets.

American judge Louis Brandeis wrote in his book, Other People’s Money and How Bankers Use it, “Sunlight is said to be the best of disinfectants and electric light the most efficient policeman.” It rings true even after more than a century.