By Ruma Dubey

The arrest of CMD of Syndicate Bank for allegedly taking a bribe of Rs.50 lakh from two companies to extend their credit facilities – Bhushan Steel and Prakash Industries is shocking.

It is shocking not because the CMD was caught taking a bribe but because he was actually arrested. That now is probably a first for any high ranking official in a long time. We have rarely come across bank chiefs being arrested; what we usually see is some of them ‘stepping down’ suddenly, citing ‘personal reasons’.

There have been many cases in the past but no arrests were made. If one may recollect, in 2013, the CBI ‘caught’ SBI deputy manager for taking bribes – he had Omega and Rolex watches worth Rs.7.5 lakh. He had allegedly violated lending norms for sanctioning a Rs.75 crore loan to a Delhi based company. Then there was the case with Corporation Bank, where the finance ministry ‘sought an explanation’  from its CMD, Ramnath Pradeep on charges issued against him by Central Vigilance Commission (CVC) over the alleged violation of norms at the state-run bank. Charges against him - sanctioning loans to a few companies in contravention of regulations, extending a big-ticket loan to a tower construction company that had already defaulted on payments to another state-controlled bank, and changing rules in a bid to appoint a consultant at the bank. But the ‘best’ is Indian Bank chief, M. Gopalakrishnan – he is the only bank chief to undergo one year imprisonment for such similar offences. Other bankers – more recent being Archana Bhargava of United Bank of India, abruptly cut short her tenure after the bank came under the scanner for mounting bad and suspicious loans. There is another recent case of Shyamal Acharya, deputy MD of SBI, where CBI filed a case of bribery.

For us Indians, bank officials caught in such activities somehow, does not even have an element of surprise; it is like telling us the earth is round! It’s a well known fact, something which we tolerant Indians have simply accepted as a way of life.

The Indian banking system is deeply skewed; when it comes to a common man, all the rules and regulations are followed, not tolerating even a single lapse on the EMI payment. But at the same time, when it comes to big companies, all rules are bent backwards and the guidelines book is thrown out of the window. How does one explain this – the RBI imposed a fine of Rs.1.5 crore on 12 banks after finding violations and this is w.r.t the default of Rs.5000 crore loan take by Deccan Chronicle Holdings from these banks. The group defaults on Rs.5000 crore and the fine is Rs.1.5 crore! No wonder, officials are ready to take bribes as the punitive actions are so mild, almost like a small pat on the back.

That brings us to the question - can we really blame off the entire state of the banking sector today, with rising NPAs on the state of the economy? Of course not! These bank officials are equally, if not more, to be blamed. Syndicate Bank is not just one isolated case, there are many more. Banking chiefs making money cutting deals with companies and individuals who do not deserve is not new. As indicated by Deccan case, the bank chiefs make money while it is the bank which pays the price. Kingfisher and Vijay Mallya stand out like a beacon of our banking system’s rot.

Sadly, we see corruption when it comes to promotions within the banks also – after all there is so much money to be made as you climb higher up the ladder. Many in the PSU banking sector say that corruption starts from GM post onwards. Unless one pays bribes, mostly paid through borrowers, it is difficult to become an Executive Director. Many in the banks allege that EDs are seldom promoted on merit. It’s like this – if you paid a ‘donation’ of Rs.2 crore to get a medical seat, surely when you become a doctor, your aim will be to first recover the money, by which time one gets habituated to easy money, forgetting the objective of the job.

In PSU banks, currently big ticket loans, which is upto Rs.400 crore get sanctioned by a ‘committee’ of the CMD, Executive director and GMs. Now who will stand against the CMD when he gives the go-ahead? And if the others get a ‘cut’ too, getting big loans is really no hassle as long as you have connections to reach the CMD.

Unfortunately, what this now means is that small and medium term borrowers will pay the price – probes, rules and regulations will go up following this and they are ones who will be subjected to them. The top companies will continue to flout and make merry.

A systemic overhaul is required. Of course a change in the entire value system of India is needed but that’s an impossible task. So let’s look at what can realistically be done:

• A complete overhaul of this system of sanctioning loans is required. Maybe like in the past, all big ticket loans should be reverted back to the Board of Directors. Bank chiefs have proven they cannot handle such power, so best to take that away from them.
• The RBI, if it can, maybe probe into the ‘price’ which one has to pay for promotions as that more or less decides who is more liable to take bribes to make up for the ‘price’ paid for the promotion.
• A probe into appointment of Independent directors on the Board of PSU banks; that it itself will tell a new tale of corruption.
• We need to completely change the risk-return ratio equation. Currently, the return is more or equal to the risk taken with the probability of being caught being almost zilch. Like the USA, we need to impose huge penalties, running into crores for offences committed for lakhs.