By M D Nalapat
What is needed is to check forensically each such loan to ascertain all facts.
As
Prime Minister, Narendra Modi has made consequential alterations to
traditional policies, the most important of which has been
demonetisation, followed by a long overdue rollout of GST. The problem
facing the Prime Minister is that, while he is the prime mover of these
innovative policies, operational details in their implementation get
drawn up by the bureaucracy. We have seen the manner in which the Modi
brainwave of demonetisation were fleshed out and implemented within the
bureaucracy in a manner that was hugely disruptive. This was evident in
the case of GST, which has had to be modified multiple times because of
the impractical features of the measure as initially implemented,
including its multiple and excessively high rates, as also the bringing
in of businesses for reporting and taxation purposes that are so small
as to have merited exclusion from the complex reporting methods. These
have been made mandatory in a context where access to the internet is
still miserably inadequate in several places, and where small
businesspersons (realistically those with an annual turnover below Rs 5
crore) do not have the time or the expertise to double up as accountants
and lawyers, two professions that have seen a huge bulge in clients as a
consequence of the GST as drawn up by unfettered bureaucrats. Such
impractical detail springs from the colonial-era propensity of the
financial bureaucracy to frame each policy in terms of the immediate
revenue that it will bring into government coffers, rather than its
impact on growth, especially in the medium and long terms. There are, of
course, blind spots in this obsessive search for additional revenue,
and the most glaring of these is the state-controlled banking system,
into which much treasure is being poured from taxpayer rupees annually.
Indira Gandhi nationalised private banks with a deposit base above Rs 50
crore in 1969 “in order to ensure funding for the poor”. Instead, these
banks have, since their takeover, been serving as piggybanks for the
cronies of politicians. In much the same way, LIC and other government
institutions buy and hold on to large chunks of equity in private
companies, so that those in power and their favourites can be given
profitable sinecures such as directorships and other privileges, some in
secret because they are illegal.
What took place between Nirav Modi and
the Punjab National Bank is only what has taken place hundreds of times
in public sector banks in the past two decades. Government of India has
been writing off each year a large number of loans that it believes will
not get repaid. What is needed is to check forensically each such loan
to ascertain whether (a) fresh loans were given despite existing ones
being overdue for 18 months or more, (b) whether the collateral for such
loans was sufficient to recompense the bank in case of default, and (c)
who the individuals were who recommended the loans that were at severe
risk of going bad. Bank officers need to familiarise themselves with
handling micro recording equipment, so that verbal orders on the part of
senior managers and directors, or from VIPs outside the bank, go on
voice record. Each direct or other conversation should be affirmed by
the manager concerned in an email or a letter to the individual making
the loan recommendation, with copies to seniors in the bank’s hierarchy.
Should
such a record not exist, the entire responsibility for a loan gone sour
will fall on the manager who gave sanction to the moneys being paid out
to those who subsequently defaulted. Some such non-repayments may be
because of market conditions or other factors (such as policy changes)
over which the individual or company availing of the loan has no
control. However, there needs to be accountability for loans given to
obvious looters of the public banking system, including where necessary
summary dismissal, or stoppage of promotions and recovery of at least
part of the losses suffered by the bank from the individual who
sanctioned the loan. In cases where the money lost by the bank is in
excess of Rs 50 crore, jail time for the officers responsible should be
mandatory, unless it can be shown that the loans were made in good faith
to those who merited them through their proficiency in business or the
professions.
What is unconscionable is to make the
innocent taxpayer pay for crimes committed by bank managers and their
clients. In an example of the distance Prime Minister Modi is willing to
traverse from the conventional, his government has ordered the forcible
merger of a Mumbai-based company with a now defunct stock exchange
begun by the major shareholder of the former. Oddly, the stockbrokers
who actually owed the moneys in default seem to have escaped penal
action thus far, while a separate company has been marked for
destruction through forcible payment by it of the dues of the other
entity. There have been whispers that the move against this company was
taken on the instance of a former Finance Minister, who wanted to both
destroy an exchange competing with a favourite of his, as well as to
protect the parties guilty of default (i.e. brokers) by loading the
entire liability onto a separate company. He is said to have made
trusted officials in the concerned ministries go ahead with this
unprecedented measure of forced merger of two private companies. The
best way to prove such conspiracy theorists wrong would be for the
Central government to administer in 2018 itself the same medicine (of
forced merger) to several dozen other pairs of private companies, so
that the losses of one get set off against the profits of another run by
the same individuals as controlled the first. In the Nirav Modi case,
it seems that an honest bank official refused to “roll over” fraudulent
paper in the same manner as his predecessors had done. This made it
impossible to conceal the scam, and now—although six years late—the
public have been made aware of the way in which a nationalised bank was
cheated in connivance with a section of its own staff. The assets of
those responsible should be located and used to repay the loans taken,
rather than rely on taxpayer rupees for the purpose. The people of this
country must not be made to pay the price for losses to banks incurred
by dishonest businessmen and ethically challenged bank managers. Through
asset sale and through other means, Prime Minister Modi should ensure
that the guilty few, rather than the innocent many, pay for the
commission of frauds such as those committed in the ongoing PNB-Nirav
Modi disaster.
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