WHAT looks like a dangerous scenario is steadily building up in India’s banking sector. The arrest of the head of Bank of Maharashtra, one of the leading public sector banks, this week comes on top of several such grim situations. The massive defrauding of Punjab National Bank by a firm of diamond merchants, among others, is already a matter of serious concern. The main brain behind it is seeking refuge in destinations abroad to escape the Indian law. Similar cases have also started unfolding in respect of institutions like the ICICI Bank. The astounding PNB fraud, of the order of Rs 110 billion happened with the collusion of over 50 executives.
An alleged quid pro quo involving the CEO of the ICICI bank and a well-heeled borrower is suspected. The extent of fraud in the Bank of Maharashtra is Rs 3,000 crore; and this could just be the tip of the ice berg. More banking scams are set to surface sooner than later. Several banks are now experiencing strain due to huge non-performing assets (NPAs) – a euphemism for default in loan repayment midway through the process by big sharks, leading also to difficulties in sales of assets at stake to recover the amounts. Several of these are business houses like the Kingfisher head Vijay Mallya, and some of the perpetrators of the fraud have quit the country for good. Worse, many of these are certified as wilful defaulters, meaning that they have the capacity to pay but are exploring the loopholes of law, allegedly with help from politicians running governments, so as to go scot-free.
The gross NPAs of Indian banks, or unrecoverable loan liabilities, is pegged at Rs 8.41trillon at the end of 2017. Where this will take India’s banking sector is anybody’s guess, and a disturbing thought. If India’s banking sector eventually collapses under the weight of these huge banking frauds, it would also mean India’s economy collapses. The filing of bankruptcy plea by a top banking institution – the Lehman Brothers 10 years ago in the United States led to a major financial crisis not just to the US but also to the West as a whole, and its adverse impact was felt across the world. In the minimum, we have lessons to learn from this, but corrective efforts are still not visible. Some investigations or arrests will not help. More needs to be done to address the rot in the banking sector.