Letters: Window dressing

According to recent data released by the Reserve Bank of India (RBI), banks in India lent 32 per cent of the total credit  extended by them and raised 40 per cent of the year’s deposits in just one fortnight. The aggregate amount of deposits was Rs 97.2 lakh crore on April 1 — a jump of Rs 3.4 lakh crore over that of the previous fortnight, which comprised a large part of the last fortnight of FY16. The amount of credit extended was Rs 73 lakh crore — a surge of Rs 2.4 lakh crore during the fortnight. Are these not “magical” numbers?

What should one call this phenomenon? This is observed in the banking business every year at the beginning of a new fiscal. Everybody, including the banking regulator, is aware of the phenomenon, euphemistically called “window dressing” in the banking world. It is nothing but dressing up or down the real data. The practice obscures the actual state of India’s financial sector.

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Banks encourage companies to avail of short-term loans or goad customers to draw down on credit lines at the end of the fiscal year. The excess cash is parked in their current accounts and that automatically boosts deposit data. All the entries are reversed within a fortnight. With the RBI’s focus on current and savings accounts growth, banks even encourage customers to encash their term deposits prematurely and park the funds in current/savings accounts. Customers are compensated during the year through reduced commission on their other businesses such as remittances, and also through other means.

Arguably, CEOs are often aware of this practice and may even encourage it. The impressive/unimpressive data helps such CEOs showcase their performance during their tenure at the bank. If a CEO has just taken over, he/she might project a dismal performance. The CEO gets the scope to publish better data in subsequent quarters. A CEO retiring after the end of the fiscal year will likely project a robust performance.

While window dressing is a common accounting practice in industry, it is quite pernicious in the financial sector because of the absence of “realness” or a commodity-based business. The banking regulator merely issues a routine warning through an administrative circular every year around the time a fiscal year is ending.

K V Rao Bengaluru

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