The CBI has raided their homes and the State Bank of India has initiated an internal enquiry into the bribery charges leveled by the investigating agency against Shyamal Acharya, deputy managing director of SBI and KK Kumarah, former assistant general manager, in what is now being called the Rs 400 Cr bribes for loans graft case.
This is not the first time the ugly head of corruption has reared itself in the public sector banking space. In 2010, the CBI had busted a racket in which executives from large banks and finance companies like LIC, LIC Housing Finance, Central Bank of India and Punjab National Bank were arrested for allegedly accepting bribes in return for sharing confidential information.In mid 2011, Corporation Bank CMD Ramnath Pradeep was indicted by the CVC (Central Vigilance Commission) on charges of corruption.
In fact a report in The Hindu states that Chief Vigilance Officers of various government organizations have received as many as 48,554 complaints of alleged corruption between January and December 2012. Of these the highest were by the railway CVOs, only to be followed by banks with 7,336 complaints. More incriminating statistics that demonstrate public sector banks’ susceptibility to commit fraud are readily available in the public domain, if only one were to look.
A speech for instance, by Dr. K C Chakrabarty, Deputy Governor of the Reserve Bank of India at a seminar organized by the Centre for Integrity, Governance and Training on Vigilance Administration on November 11th was largely overlooked by the media. But in the light of the CBI investigation into the activities of Acharya & Co, the contents of that speech become glaring for the startling facts they reveal about the extent of corruption and fraud at India’s public sector banks.
According to the speech (Read document) uploaded on the RBI website, a study conducted by the central bank unearthed fraud of a staggering Rs 15,677 Cr as of September 2013. And 88% or this fraud worth Rs 13,766 Cr was perpetrated at nationalized banks alone. This involved 197 accounts and took into consideration only large value fraud that was above Rs 50 Cr, so the total amount will be much larger in reality. Private banks and foreign banks in contrast were responsible for only 8% and 4% respectively of the cases of fraud unearthed by the RBI.
Why such a glaring discrepancy? Are there lacunae in the punitive vigilance process adopted by public sector banks to detect fraud?
The deputy governor highlighted various anomalies that needed correction. For one, time taken for cases to be ascertained as fraud was very high. It took over 10 years for 45% of the cases and between 5 to 10 years for 67% of the cases, creating a great disconnect between the punishment meted out and the offence. But if the delays in bringing fraudsters to book aggravated transgressions, the fact that public sector bank employees enjoyed a great degree of impunity could have further emboldened those committing the fraud according to Chakrabarty.
“We observe that in public sector banks, most of the officials found liable were let off with minor penalties- caution, warning, censure, stoppage of increments for limited period etc. which sends out a wrong message - a message about passive tolerance rather than active intolerance towards misconduct. Incidentally, private and foreign banks operating in India adopt a no- nonsense approach as reflected by the quantum of penalties imposed for similar misdemeanors including dismissal from service” said the deputy governor.
The study furthermore highlighted the ‘skewed’ nature of the vigilance process which tended to focus on lower level functionaries even though the sanctioning of advances is usually at the level of senior executives/Board. Out of 719 officers who were found accountable in 230 large value fraud accounts in the banks over a period of time, 426 officers were up to the rank of Senior Manager, 196 officers were Chief Managers and AGMs, 94 officers were of the rank of DGM, GM and CGM and 3 officials were from the top management and Board of Directors. So contrary to belief that most frauds are perpetrated at the lower rungs, they aren’t.
Chakrabarty also touched upon the “issue of bureaucrats, regulators, supervisors taking up appointments with the entities they regulated/supervised, soon after their retirement.” He said “This is an inherently dangerous practice which needs to be curbed with appropriate polices.” Given that Kumarah joined Worlds Window Group (the borrower) after leaving SBI as an advisor, maybe these policies should be considered for bank employees also.
Finally, with both PSU bank frauds and NPAs on an upswing, perhaps a corollary needs to be drawn between the two to identify how many of the non-performing assets are a failure of the credit appraisal and disbursement supervision processes and how many are an outcome of the bribe led lending culture that seems to be prevalent in public sector banks.