Sbi, Finance Cut A Sorry Figure

This volte face by the SBI management and the real powers behind it, the finance ministry, resulted from the strike that the banks officers launched at its Maharashtra and Goa branches as soon as the suspensions were ordered and the threat of the agitation spreading. The non-functioning of the countrys biggest commercial bank in its premier financial centre was enough to disrupt the call money market to begin with and promised to do a lot more. The significance of what they were doing cannot have escaped the banks officers who persisted with the strike, their first in nearly 30 years!

 

If nothing else, the suspension-and-withdrawal fiasco has set a bad precedent. It has undermined the banks ability to take prompt action in the future against a large number of people who may be involved in a major fraud, say, of the 1992 kind. Both the management and the union leaders stand in danger of being subjected to all kinds of real or perceived pressures the next time there is need for prompt and concerted action to quickly pin down large scale fraud.

What is worse, the grounds for taking the action in the first place have not become any clearer over time. Providing encashment-at-par facility for dividend and interest warrants and refund orders is neither new nor unique and is a vital element of investor service. This is no different from discounting a cheque or a bill. Once this decision is taken by the sanctioning authorities and even the maximum limit normally stipulated is withdrawn, the official paying the instrument exercises the same judgment as he would while paying the banks own drafts. Union representatives have pointedly argued that the suspended officials have been held guilty of violating systems and procedures that do not exist.

It would be reprehensible if this were a case of the SBI management trying to find scapegoats lower down the hierarchy for what is really a wrong credit decision (extending a facility to CRB Capital) by those far higher up. In reality it was probably worse. By all accounts and going by what the union members have alleged, the SBI management succumbed under intense pressure from the finance ministry not once but twice. SBI chairman M S Verma was initially able to withstand pressure from the finance ministry to act (it is politically expedient for a few heads to be seen to roll when a fraud involving the public breaks out). When he visited the ministry in early June, after cancelling his visit to an international bankers meet in Switzerland, he was able to gain more time to find things out before taking action against individuals.

But the pitch was queered, it seems, by the CBI. It came into the picture once the SBI lodged a complaint over a perceived fraud involving CRB Capital and then went about booking the guilty with almost indecent haste. Joginder Singh, then still head of the CBI, paid highly publicised visits to Mumbai and even promised to complete the investigations by August 15, when the Harshad Mehtas of the 1992 scam are still going around freely and happily. The CBI, whose director was on borrowed time, apparently wanted SBI to name names -- not just identify those who it thought were guilty but also aver that they were involved in a conspiracy. This the bank was reluctant to do. Its stand was: we apprehend a fraud; now you find out who did what.

The finance ministrys attitude changed once the CBI complained to it that SBI was not co-operating with the investigations. On the fateful day the ministry thundered: Heads must roll by 4 pm or we will ensure that they do. Verma and his team caved in and ordered the suspensions and caved in a second time later by reaching the compromise, under pressure of the ministry, to end the strike.

In this unhappy chapter in SBIs long history, chairman Verma comes out with little credit to himself. It is the job of the chairman to stand up to pressure from politicians and bureaucrats who want scalps at given moments to respond to public demand for action. Officials who know that their management will protect them when they are caught in other peoples nets due to no fault of their own, go about taking the normal risk that their jobs in a bank entail. It is worth recalling the career of R K Talwar, the first bank official who rose to head the organisation and who had to go during the emergency as he would not bow to political pressure. In such a situation, a bank chairman has no option but to offer to resign. Otherwise he loses the respect of his staff.

The finance ministry is itself keenly aware of what happens when officials in nationalised banks become risk averse. They do not lend and then the government has to set up a committee of a retired judges and others to vet proceedings against officials in order to raise their confidence level that they will not be penalised for the consequences of taking normal commercial risks. What the finance ministry sought to do with one hand earlier it has now undone with the other.

The role of the SBI Officers Associations commitment to its cause diminished as the strike continued. It seems that the leaders of the union were looking for a face saving way of ending the strike before public sympathy turned against them. And eventually when the compromise was reached one evening, the announcement was deliberately delayed till fairly late in the night to create the impression that there was much hard bargaining till the last minute. There is little hope for better governance in India unless standards of public conduct get better.