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The largest public sector bank and the largest private sector bank have announced losses for the first quarter (Q1) of the financial year 2018-19. The results have shocked many, particularly in the case of the State Bank of India, where the Q1 (April-June 2018) loss stood at Rs.4,876 crore, the third straight quarterly loss. ICICI Bank, where the CEO has gone on leave pending an inquiry into allegations of conflict of interest in loan disbursal, reported a net loss of Rs.120 crore in Q1, a number which would have been higher but for a gain of Rs.1,110 crore from the sale of shareholdings in its subsidiaries. This is the first time in the last 17 years or so that ICICI has reported a loss.
SBI, for an example, has gross Non Performing Assets (NPAs) of Rs.2 lakh crore (precisely Rs.2,12,840 crore as on June 18), which is inching down very slowly but still sticks out as a very bad number. ICICI bank has gross NPAs in the region of Rs.54,000 crore. In Q1, it added more than Rs.4,000 crore to its gross NPAs.
Analysts in both cases were in for a nasty surprise; the results went against expectations. The losses mirror the state of affairs in our banks, which (among other challenges) remain saddled with large loan accounts that are not performing and can be listed as assets only up to a point. SBI, for an example, has gross Non Performing Assets (NPAs) of Rs.2 lakh crore (precisely Rs.2,12,840 crore as on June 18), which is inching down very slowly but still sticks out as a very bad number. ICICI bank has gross NPAs in the region of Rs.54,000 crore. In Q1, it added more than Rs.4,000 crore to its gross NPAs. True, this is the lowest in the last 11 quarters but the number tells us that private sector banks are no better, and in some ways in worse shape than the public sector. They don’t even have the excuse of political pressures to satisfy so when they swim in the same NPA cesspool, it tells us that there is something fundamentally wrong with leadership and governance in our banks.
The case of Punjab National Bank, which also reported a Q1 loss (Rs.940 crore; analysts had expected a bigger loss) highlights the brazenness with which fraud happens in the system. PNB is our second largest public sector bank and sits on gross NPAs in the region of Rs.82,000 crore (precisely Rs.82,889, as of June 2018), of which Rs.14,300 crore was added almost overnight as the Nirav Modi scam exploded.
In a sense, the higher provisions and losses can be seen as good news because that is the muck being acknowledged on the balance sheet (partly because of regulatory pressure) as a loss by our largest banks. With total NPAs across the banking system crossing Rs.10 lakh crore, this is the biggest economic, political and indeed social and security concern facing the nation because who will want to put their money in banks when such staggering amounts can be lost. Investigations are rare or poor, and almost always slow or lost in a maze of reports and litigation. Convictions and punishments are rarer. Managements and bank officials, without whose connivance this cannot go on, live on almost unscathed. The argument that the bulk of the bad loans are sector specific or because of issues in specific sectors (say power, telecoms or infrastructure) is not good enough. For every big bad loan, there are hundreds of smaller ones enjoying the shade. The system runs with the idea that it is possible to be accommodative and carry on.
We now talk in terms of how the rate of increase of NPAs has slowed, which in itself is celebrated as an achievement. PNB has “recovery champions”, “mega rin mukti shivirs” (debt-free camps), “mission Gandhigiri”, which, it says, is “demonstration in front of premises of recalcitrant borrowers”. Never before did the State bow to criminals in such a manner.
At this point, there is almost a comical circus being played out in banking circles. Where there ought to be alarm, a sense of urgency and even fear that the law will hound out criminals with an iron hand, we have a new lexicon. We now talk in terms of how the rate of increase of NPAs has slowed, which in itself is celebrated as an achievement. PNB has “recovery champions”, “mega rin mukti shivirs” (debt-free camps), “mission Gandhigiri”, which, it says, is “demonstration in front of premises of recalcitrant borrowers”. Never before did the State bow to criminals in such a manner.
In defence of the banks, particularly where managements have changed (at ICICI, where everybody but the board could see the conflict of interest, they only acknowledge that the CEO, Ms. Chanda Kochar has gone on leave), it may be said that they are working to reduce the NPAs. Where misdeeds were under another leadership, it is in the interest of new leaders to expose the rot. But the direction must come from the top – the administrative and political leadership. Here is a fit case for using the full force of the law to go that extra mile and send a message to the system.
This means registering crimes not in one or two flagship cases of fraud but across hundreds and thousands of such accounts and holding investigations in broad daylight. We need regular briefings, updates and aggressive teams with the go ahead to prosecute so that the message goes out. Investigations into bank frauds should be treated with no less urgency and significance than investigations into terror attacks that threaten our national security. Every occasion is fit to reiterate and drive home the resolve to bring the guilty to book.
Consider instead how the leadership is responding. Last month, the Minister of State for Corporate Affairs PP Chaudhary in a written reply to the Rajya Sabha acknowledged complaints received by the Serious Fraud Investigation Office (SFIO) in the Nirav Modi case but did not provide details. At the Reserve Bank of India, it came as a small aside to an important press conference to announce the decisions of the Monetary Policy Committee last fortnight. About 20 minutes into the talking there came a question on governance in private sector banks and conflict of interest in loan dispersal, alluding to ICICI.
We must shine the torch on specific people and specific banks and keep demanding more from the regulators so that the nation can see and call out the violators. NPAs is not the private business of banks or the regulators. It is a question of national importance and the people must know all there is to know.
Here is the classic non-response from the RBI, spelt out by Deputy Governor N S Vishwanathan: “I think it is not appropriate for us to discuss any specific bank, but I must tell you that we are alive to what is happening in the banking system and we are dealing with those situations as they are emerging, but I cannot mention what we are doing with the specific bank…”
This bureaucratese speaks of an attitude that says all is well and is being managed. It is not only appropriate but also imperative to discuss specifics rather than mouth the nothingness on offer. We must shine the torch on specific people and specific banks and keep demanding more from the regulators so that the nation can see and call out the violators. NPAs is not the private business of banks or the regulators. It is a question of national importance and the people must know all there is to know.
(Jagdish Rattanani is a journalist and a faculty member at SPJIMR)