Buck stops with bank chairmen, boards

The latest banking scandal to the surface is the Rs 3,000-crore fraud in Bank of Maharashtra (BoM) in which the CEO and Managing Director and some present and past top officials of the bank have been arrested. The charges relate to the illegal sanction of loans to a real estate company. These have come after the arrests of several bank officials in a number of other cases and reports of investigations by the police and other agencies of charges of irregularities in many banks. The fraud involving Punjab National Bank officials and jeweller Nirav Modi attracted much attention because of the large amount involved and Modi’s escape from the country. A series of scams have come to light after that in which both public sector and private banks have figured. It is widely believed that they may only be a small part of the fraud and many skeletons are yet to come out of the cupboard.

From Vijay Mallya through Nirav Modi to the BoM scam, the fraud may amount to over Rs 30,000 crore and it is anybody’s guess how much more may be involved as skeletons tumble out of the cupboards of other banks. Most of the frauds relate to the illegal grant of loans that have subsequently turned bad. The declared size of the loans gone bad till now is over Rs 9 lakh crore and the size of all the frauds put together can be imagined from that. What has become clear is that the scams did not occur in just a single branch of a bank and were not committed by just a few officials, as banks have sought to make out. They manifest a systemic disorder, and the top management of banks, the RBI, which is the regulator of banks, and the government, which owns 70% of the banks, cannot escape responsibility for it. The buck stops at the top management and boards of banks, and even the highest officials should be held accountable, either for being part of the fraud or for not preventing it and failing to take action against the guilty. The RBI is also answerable for the failings.

But the response from the banking community is disappointing. Instead of supporting the investigations and efforts to bring the guilty to book, senior banking personnel have decided to unite against “arbitrary” arrests and “harassment by probe agencies”. The Indian Banks’ Association is planning to meet senior government officials to protest the action against bankers. The argument is that such actions would make it difficult to take bona fide decisions and thus hurt the economy. The government should not succumb to such pressure tactics.