Bank Fraud Committee

The new board to screen and advise on investigations into officials of the rank of general manager and above is a compromise between the old demand and the present situation. If this does lead to a more commercial approach then it will have served the purpose. But the manner in which the board has been constituted raises doubts about its ability to adopt a commercial approach. Its members include a well known chartered accountant, which is desirable, but also a retired secretary to the government of India which is quite inexplicable. There is also a retired judge who is presumably there to take care of the legal aspect but also a retired police officer who can be expected to have the approach of the CBI from which a distance is sought to be created. But the greatest shortcoming is that the board does not include a commercial banker, though it is headed by a prominent central banker, S S Tarapore, who is considered an authority on monetary policy. The RBIs regulation of banking, which has often missed the wood

 

for the trees, has traditionally been high on detail but low on effectiveness. The securities scam, which took place despite the existence of the most stringent norms for, among others, portfolio management schemes, underlined the need for practical inputs to inform regulation. Sadly, this board may suffer from the same lacuna.

It is doubtful whether the board will help in raising the comfort level of bankers who are risk-averse because of the bureaucratic manner in which banks are run. The real way out is for the banks to be run differently. For that to happen they have to at least have proper boards with independent and professional directors who can help monitor asset quality. The first step needed to achieve this is to break up the post of chairman-cum-managing director and in its place have a chief executive who runs the bank and an independent non-executive chairman who casts a watchful eye over the way the bank is run. Since the government through its banking department has been unable to deliver even on this, the committee may eventually end up only creating some work for retired officials.