Sunday, 30 October 2016

Supreme Court is right on bank NPAs (Sunday Guardian)

Banks in India have historically kept details of loans secret from the public. This has been justified on numerous grounds, including that of “privacy”. While such considerations may be understandable in a social situation involving private individuals above the age of consent, they are not so in cases where those who borrow hundreds and thousands of crores.

Not only has secrecy over loan details been ineffective in curbing the volume of loans gone bad, the covering up of such data has actually contributed to mammoth leaps in the quantum of irrecoverable bank debt. Indira Gandhi took over the biggest private banks in India in order to ensure that the poor were given access to bank finance. Presumably, a definition of “poverty” covering those with wealth in excess of tens and even hundreds of crores of rupees, for it is these who have most benefited from such banks. And why should we be surprised, when it is known that in the recent past, several at the top of these ill-run behemoths were chosen only after making a visit to Chennai to be interviewed by an individual whose parent enjoyed a position of significant responsibility within the then government?

The list of bureaucrats who danced the bhangra at the bidding of this individual and his parent is long, but helping hands ensured that they have not had their subsequent careers blighted. Were banks to reveal the names of directors who during the past ten years orally or in writing recommended the giving of loans to select individuals, such interested pleadings may become less endemic than they have been within the banking system. Any oral recommendation of a loan by a bank director ought to be recorded in writing by the officer to whom the request was made, and this should be made public on an RTI request. Only those involved in assisting the dodgy or speaking up for defaulters would oppose banking transparency. Sadly, the Reserve Bank of India has thus far condoned such practices, despite their being responsible for a flood of loans given to those who from the start were determined not to repay such moneys. Such defaulters need to be separated from those who have landed into repayment difficulties because of business conditions. Which is why there is significance in the Supreme Court’s query as to why the names are still kept secret of those owing more than Rs 500 crore each to banks in India. Especially when, according to Chief Justice T.S. Thakur, restructured loans alone amount to a million crore rupees, a sum which clearly shows the toxic consequences of banking secrecy as practised in India.

Especially in institutions controlled by the state, there ought to be transparency as to the repayment status of big loans given. In view of the fact that giving any sort of information to the public is anathema to the colonial system of government inherited from this country’s pre-1947 past, a halfway measure would be to disclose loans that are over Rs 100 crore and which are more than three years overdue. Prime Minister Narendra Modi, who is a believer in transparency and accountability, needs to ensure that such a change in banking procedure get carried out at the earliest, as doing so may dampen some of the lobbying and bribery that are prevalent in the banking sector so as to secure loans to the undeserving.

The Supreme Court may perhaps consider setting an example in this regard, by ordering that proceedings in courts be recorded on video and audio and made accessible to those filing a valid application in public interest under RTI. Ideally, every court proceeding should be live streamed via the internet, so that proceedings within these abodes of justice become available to members of the public. The development of technology would in the next few years anyway make such transparency inevitable, as it would enable the video and audio recording of court proceedings through cellphones by those present. Trust in that noblest of institutions, the judiciary, will only increase once proceedings in every court be made accessible to the public, save a few exceptional cases where special circumstances such as grave threats to national security or protection of minors may be in play. The arguments used against such openness in courtrooms are the same as were deployed when the demand for telecasting sittings of the Lok Sabha and the Rajya Sabha were made. There has been no observable calamity since such a measure was carried out, and there will be none should a similar trust in the maturity of the public get extended to the legal system. In the effort to ensure 21st century rather than 19th century standards for India, the Supreme Court and the High Courts need to play a key role, and ensuring full transparency in proceedings would be a welcome component of such a process. In the case of the banks, hopefully the government will not wait for the Supreme Court to order the release of information about big borrowers, but will go ahead with such steps itself. The ever present cloak of secrecy that officialdom in India delights in wearing to mask its actions and processes has resulted in India having an administrative system so dysfunctional that honest and capable citizens of India do well everywhere in the world except in their own country.

Justifications for opacity have been discredited by the level of fraud in the banking system, especially as shown in the quantum of “non-performing assets”. Not only within the banking system, but equally in the matter of taxes paid, there needs to be visibility to the public, as is the rule in Norway, where all tax returns are shown online. Certainly there are negatives in every measure, but when these get overwhelmed by the positives, they need to be enforced. The limited extent of negatives in transparency is far below the positive effects of such exposure. It is time for RBI Governor Urjit Patel to mandate the end of the colonial-era regime of banking secrecy at least where bad loans are concerned.

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