While many eyebrows are being raised on the obscene value of the fraud detected at PNB (~11000 cr INR/ 1.8 BN USD); it holds no surprise if one understands the psyche of Indian banks, primarily the PSUs. Vijay Mallya did the same thing, brazenly taking the banks for a ride before fleeing, just in time. Very uncanny, that even Nirav & his cohorts also left India, again, just in time!!! The other challenge is when such frauds are detected, the system invariably pounces on the minnows. Why there is no accountability at the very top?
The banks, especially the PSU banks, needs to answer a few question to themselves:
- Why ever-greening of loans is such a trendy fashion to make the books look great despite knowing well that there is no intention to payback by these corporates? This is well understood and hence thoroughly leveraged by these corporates
- What is the %age of corporate loans that were known to default anyway even before it was disbursed? Looks funny but the practices of the banks should be probed very deeply to uproot such sabotage. Only a fool would think that such sabotage happens at low level
- Why are checks and balances not working? These banks have been investing in technology but for reasons best known to them, they are leap years beyond implementing the latest technologies, delaying the much needed automation/ transparency. This means more power & discretion at person level and thus leaving doors open for scrupulous people to take advantage. Is that the reason for delay or outcome of the delay?
- Why such detections happen only after external trigger? While PNB claims to have informed the bourses & CBI on its own, the question is did they had a choice? The banks which were giving advances based on PNB LOU’s were knocking fervently the later to honor the guarantee, which left PNB to leave with no choice but to report so as to ensure that it can dispute those claims by other banks. On back foot, it is now claiming that it will follow RBI’s guidelines. It is very intriguing to know that this fraud was continuing from 2011, when LOUs were started, till 2018, without top management getting an wind of it!
- Do they have right KPIs to drive the right behavior? A sales/ target oriented culture that has been in place for last few years. With the outcome of bad decision/ dubious advances, only having a very delayed impact (maybe after 4-5 years of actual loans) and incentives based only on sales target being met; there is no check on dirty water flowing into the bank.
Deeply connected, politically savvy and immensely rich; the Nirav Modi’s of India has the right ingredient to take the PSU banks for a ride because they are waiting for it!
The next big problem is that penalizations and actions post any such events are significantly less than what is commensurate for a crime of such huge proportion. A few questions need to answered. How many have been severely punished, how quick were those actions and did any top heads (the one actually accountable) rolled when such an event happened earlier?
Practically these PSBs are sitting ducks to be gamed, with neither the teeth nor intent to prevent recurrence. Coupled with that ineffective administration means odds are in favor of those super rich, well connected ones to game the system. There is urgent need to drastically improve the governance process in such banks and backing it up with state of the art process & technology to ensure early detection of any suspected sabotage of process and putting in right disincentives for those who tries to game the system!
Who is defaulting and who is paying for it? Unless they are the same, we can be sure of many such incidents in future!
Source: image from http://www.financialexpress.com/india-news/punjab-national-bank-fraud-scam-case-live-updates-nirav-modi-ed-pnb-lou-cbi/1067027/