Skip to main content

Big bank defaulters can employ legal eagles, can play with judicial system








By Moin Qazi*
The world’s great philanthropist and investment leader, Warren Buffett, once said, “It’s only when the tide goes out that you realise who has been swimming naked”. Well, it’s the ebb of the tide for many of India’s high-flying crony capitalists like Nirav Modi and Mehul Choksi, as they find themselves caught in an ignominious buff. Their diamonds may have sparkled on the necklines of world’s acclaimed models, but their names are now dirty blots on the nation’s financial skyline. Their misdeeds have shaken the credibility of India’s $60 billion gem and jewellery industry, which is the country’s second largest forex earner, accounting for about 16 per cent of the total merchandise exports.
Similarly, sometimes, it takes a pitch-black economy to reveal who and what in the financial firmament really shine. It is only when darkness falls that the stars start twinkling. The moonshine on an otherwise bleak sky has been made possible by the small honest taxpayers who are transfusing precious blood to extend a lifeline to the bleeding banks.
It is tragic that even as the country is grappling with massive problems confronting its struggling masses, these ignoble billionaires are having regular rides to the public trough and reveling in plunder and loot. The proportion of dodgy loans — loans on which the borrower is not making interest payments or repaying any principal — in India has surged to be among the highest in the world.
The question is: Why should ordinary people bear the burden of fat cats who keep indulging their desires by dipping into public savings and laugh all the way to the bank? These free loaders are gleefully and remorselessly winnowing scarce bank capital and the Government has to goose these banks with spruced up balanced sheets to make them lend again. Ironically, instead of being chastised, they are lauded as captains of the industry and adorn glorious positions in industry associations.
India’s near $147 billion pile of soured loans is a classic example of how powerful and politically influential tycoons undermine the rules to secure credit and then default on it. When borrowers become insolvent, their loans are added to an existing mountain of debt. Each time it happens, banks have to make heavy write-downs, plowing the dud loans like rotten potatoes, ultimately choking the credit line. To keep these banks going, the Government has to regularly keep injecting capital into them.
Most major loan defaults have their genesis in frauds; these have ballooned non-performing assets (NPAs). The Reserve Bank of India’s (RBI) June 2017 “Financial Stability Report” says losses from financial sector frauds rose 72 per cent in the five years to fiscal 2017 to Rs 16,770 crore. State-run banks have reported 8,670 loan fraud cases, totaling 612.6 billion rupees ($9.58 billion) over the last five financial years up to March 31, 2017.
Most big defaulters have the money to employ legal eagles who can play the judicial system and it is here where the law flounders. The country has the most draconian laws in books but they are ineffective against powerful dodgers. We show such promptness in condemning waivers for poor farmers but we lack the courage to tame the large fishes because they have enormous clout. Remember how banks become aggressive in turning mortgage defaulters on to the streets?
The indebted farmers are tying the noose out of sheer humiliation then there is a class of salaried people who rarely default, but are chased down for their small unpaid bursaries .The bankers seem to be totally helpless when it comes to malfeasant promotes of big businesses. The stink of their loans and scams has leached its poison into the entire financial system.
Swindlers have outfoxed a system which no longer appears impregnable. This failure has shown just how deeply lacerated are the central parts of our economic life. When institutions, such as banks, that are supposed to embody trust, are shown to be brittle, it leads to concerns of how fragile the economy is. The RBI now no longer appears to be the financial seer and therapist which insulated the domestic economy from the financial turmoil of 2008.
Scams are a product of a deadly concoction of greed and immorality. However, abuse of the financial system has been made possible on account of several weaknesses in it: Lax governance standards, supine boards, poor lending practices, manual processes, unionised staff, rogue bank officials, sloppy compliances, outdated software and lack of understanding of technology.
Costs may have also impeded the banks from upgrading their systems. In an age which heralds technology as the silver bullet, we should not overlook their most important source of competitive advantage: Their people. Compliance and controls are weak the world over. They are, to a large extent, dependent on people running it. And remember, a process is only as good as the people managing it. The most agile auditors will also have to struggle to stop managers who are determined to hide their dirty laundry from view.
It is strange that repayment ethics, so deeply ingrained in Indian culture, have been made foul words by politicians. The sanctity of repayment, no matter how deceitfully the debt was contrived and how cruel the costs, has been driven into the Indian consciousness since the time of Manusmruti. Today the debts contracts have lost their entire sanctity. It is a fact that the moral culture is under severe strain and any amount of laws and rules can’t discipline the toxic human impulses. Most people have a psychological aversion to repaying bank loans. In several cases, they have sufficient assets and capital to redeem their debt but they use every possible means to avoid it.
Things have turned so ugly that whether it is an individual or institution, getting back any money at all is a reason for jubilation. We have seen how business leaders splurge on birthday bashes but avoid repaying their loans. They have neither lost their homes nor have had to change their lifestyles despite offering personal guarantees for loans to banks? In this respect, small customers are far more honest than big ones. Some of them have such exemplary credit histories that it makes the best bankers blush.
The reason for protecting the borrower against the creditor is that the much reviled moneylender looms large in our collective psyche. The scenario now is totally different. Big borrowers are not like helpless farmers and the lender today is not the cruel sahukar but the public bank. When these large businessmen default, they rob each one of us taxpayers. In several cases, precious and scarce banks funds are being used to finance opulent lifestyles of these people.
The turmoil has prompted calls for improvising risk management models that seem to have created an illusory sense of security. Models and machines cannot act as a surrogate for human expertise. Money management is no more a genteel world. Bankers will now have to bring in hard-boiled traders instincts to make it safe and secure. In a prophetic warning way back in 1913, John Maynard Keynes wrote in “Indian Currency and Finance”: “In a country so dangerous for banking as India, (it) should be conducted on the safest possible principles”.
The Indian financial sector is at crossroads and its leaders will now have to use their financial alchemy to overcome its most challenging moment. Perhaps it is one of those occasions where Rudyard Kipling’s advice can be the best guide:
“If you can trust yourself when all men doubt you,
but make allowance for their doubting too”.

It will not be out of place to quote former RBI Governor Raghuram Rajan from his Homer Jones Memorial Lecture, delivered at Federal Reserve Bank of St. Louis, St. Louis, Missouri on April 15, 2009. “A crisis offers us a rare window of opportunity to implement reforms-it is a terrible thing to waste. The temptation will be to overregulate, as we have done in the past. This creates its own perverse dynamic… Perhaps rather than swinging maniacally between too much and too little regulation, it would be better to think of cycle-proof regulation. ”
*Development expert

Comments

TRENDING

How Hindutva and the Taliban mirror each other in power and ideology

By Bhabani Shankar Nayak*  The recent visit of Taliban-appointed Afghan Foreign Minister Amir Khan Muttaqi to India and the warm reception extended to him by the Modi government have raised questions about India’s foreign policy direction. The decision appears to lend legitimacy to the Taliban regime, which continues to suppress democratic aspirations in Afghanistan. 

History, culture and literature of Fatehpur, UP, from where Maulana Hasrat Mohani hailed

By Vidya Bhushan Rawat*  Maulana Hasrat Mohani was a member of the Constituent Assembly and an extremely important leader of our freedom movement. Born in Unnao district of Uttar Pradesh, Hasrat Mohani's relationship with nearby district of Fatehpur is interesting and not explored much by biographers and historians. Dr Mohammad Ismail Azad Fatehpuri has written a book on Maulana Hasrat Mohani and Fatehpur. The book is in Urdu.  He has just come out with another important book, 'Hindi kee Pratham Rachna: Chandayan' authored by Mulla Daud Dalmai.' During my recent visit to Fatehpur town, I had an opportunity to meet Dr Mohammad Ismail Azad Fatehpuri and recorded a conversation with him on issues of history, culture and literature of Fatehpur. Sharing this conversation here with you. Kindly click this link. --- *Human rights defender. Facebook https://www.facebook.com/vbrawat , X @freetohumanity, Skype @vbrawat

Celebrating 125 yr old legacy of healthcare work of missionaries

Vilas Shende, director, Mure Memorial Hospital By Moin Qazi* Central India has been one of the most fertile belts for several unique experiments undertaken by missionaries in the field of education and healthcare. The result is a network of several well-known schools, colleges and hospitals that have woven themselves into the social landscape of the region. They have also become a byword for quality and affordable services delivered to all sections of the society. These institutions are characterised by committed and compassionate staff driven by the selfless pursuit of improving the well-being of society. This is the reason why the region has nursed and nurtured so many eminent people who occupy high positions in varied fields across the country as well as beyond. One of the fruits of this legacy is a more than century old iconic hospital that nestles in the heart of Nagpur city. Named as Mure Memorial Hospital after a British warrior who lost his life in a war while defending his cou...

N-power plant at Mithi Virdi: CRZ nod is arbitrary, without jurisdiction

By Krishnakant* A case-appeal has been filed against the order of the Ministry of Environment, Forest and Climate Change (MoEF&CC) and others granting CRZ clearance for establishment of intake and outfall facility for proposed 6000 MWe Nuclear Power Plant at Mithi Virdi, District Bhavnagar, Gujarat by Nuclear Power Corporation of India Limited (NPCIL) vide order in F 11-23 /2014-IA- III dated March 3, 2015. The case-appeal in the National Green Tribunal at Western Bench at Pune is filed by Shaktisinh Gohil, Sarpanch of Jasapara; Hajabhai Dihora of Mithi Virdi; Jagrutiben Gohil of Jasapara; Krishnakant and Rohit Prajapati activist of the Paryavaran Suraksha Samiti. The National Green Tribunal (NGT) has issued a notice to the MoEF&CC, Gujarat Pollution Control Board, Gujarat Coastal Zone Management Authority, Atomic Energy Regulatory Board and Nuclear Power Corporation of India Limited (NPCIL) and case is kept for hearing on August 20, 2015. Appeal No. 23 of 2015 (WZ) is filed, a...

Urgent need to study cause of large number of natural deaths in Gulf countries

By Venkatesh Nayak* According to data tabled in Parliament in April 2018, there are 87.76 lakh (8.77 million) Indians in six Gulf countries, namely Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE). While replying to an Unstarred Question (#6091) raised in the Lok Sabha, the Union Minister of State for External Affairs said, during the first half of this financial year alone (between April-September 2018), blue-collared Indian workers in these countries had remitted USD 33.47 Billion back home. Not much is known about the human cost of such earnings which swell up the country’s forex reserves quietly. My recent RTI intervention and research of proceedings in Parliament has revealed that between 2012 and mid-2018 more than 24,570 Indian Workers died in these Gulf countries. This works out to an average of more than 10 deaths per day. For every US$ 1 Billion they remitted to India during the same period there were at least 117 deaths of Indian Workers in Gulf ...

New RTI draft rules inspired by citizen-unfriendly, overtly bureaucratic approach

By Venkatesh Nayak* The Department of Personnel and Training , Government of India has invited comments on a new set of Draft Rules (available in English only) to implement The Right to Information Act, 2005 . The RTI Rules were last amended in 2012 after a long period of consultation with various stakeholders. The Government’s move to put the draft RTI Rules out for people’s comments and suggestions for change is a welcome continuation of the tradition of public consultation. Positive aspects of the Draft RTI Rules While 60-65% of the Draft RTI Rules repeat the content of the 2012 RTI Rules, some new aspects deserve appreciation as they clarify the manner of implementation of key provisions of the RTI Act. These are: Provisions for dealing with non-compliance of the orders and directives of the Central Information Commission (CIC) by public authorities- this was missing in the 2012 RTI Rules. Non-compliance is increasingly becoming a major problem- two of my non-compliance cases are...

Epic war against caste system is constitutional responsibility of elected government

Edited by well-known Gujarat Dalit rights leader Martin Macwan, the book, “Bhed-Bharat: An Account of Injustice and Atrocities on Dalits and Adivasis (2014-18)” (available in English and Gujarati*) is a selection of news articles on Dalits and Adivasis (2014-2018) published by Dalit Shakti Prakashan, Ahmedabad. Preface to the book, in which Macwan seeks to answer key questions on why the book is needed today: *** The thought of compiling a book on atrocities on Dalits and thus present an overall Indian picture had occurred to me a long time ago. Absence of such a comprehensive picture is a major reason for a weak social and political consciousness among Dalits as well as non-Dalits. But gradually the idea took a different form. I found that lay readers don’t understand numbers and don’t like to read well-researched articles. The best way to reach out to them was storytelling. As I started writing in Gujarati and sharing the idea of the book with my friends, it occurred to me that while...

Creative destruction? The myth of ‘better capitalism’ behind the 2025 Economics Nobel

By Bhabani Shankar Nayak *  The Royal Swedish Academy of Sciences has awarded the 2025 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel to Joel Mokyr , Philippe Aghion , and Peter Howitt “for having explained innovation-driven economic growth .” According to the Nobel announcement on October 13 , one half of the prize goes to Professor Joel Mokyr “for having identified the prerequisites for sustained growth through technological progress ,” while the other half is shared by Professors Philippe Aghion and Peter Howitt “for the theory of sustained growth through creative destruction .”

Justice for Zubeen Garg: Fans persist as investigations continue in India and Singapore

By Nava Thakuria*  Even a month after the death of Assam’s cultural icon Zubeen Garg in Singapore under mysterious circumstances, thousands of his fans and admirers across eastern India continue their campaign for “ JusticeForZubeenGarg .” A large digital campaign has gained momentum, with over two million social media users from around the world demanding legal action against those allegedly responsible. Although the Assam government has set up a Special Investigation Team (SIT), which has arrested seven people, and a judicial commission headed by Justice Soumitra Saikia of the Gauhati High Court to oversee the probe, public pressure for justice remains strong.