You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time, said Abraham Lincoln. Well, that may be true, but the Narendra Modi regime is convinced that even if you can’t fool all the people all the time, you can do that for a very long time. And that is all what matters, for, in the long run, we are all dead. The Nirav Modi episode underlines this truth.Bharatiya Janata Party leaders and government functionaries are convinced that they can shift the blame on anybody other than themselves. So, BJP spokes persons keep telling the media that the scam started in 2010 when the Congress was in power. On his part, Finance Minister Arun Jaitley doesn’t tire blaming regulators, bank managements, auditors, et al—that is, slamming everybody other than the biggest culprit, his own ministry. Recently, he said, “We must always remember that regulators have a very important function. They ultimately decide the rules of the game and they have to have a third eye kept perpetually open and turned towards the sector. But, unfortunately, in [the] Indian system, we politicians are accountable, the regulators are not.”
Well, Minister, regulators might have erred many a time, but that can’t be the excuse for the incompetence and venality of politicians. And what a statement—“politicians are accountable”! Which politician, involved in the financial improprieties of the UPA regime—which your party has been highlighting for years—has been thrown behind bars? Accountable politicians! You must be kidding. The big problem is the accountability of politicians, not of regulators.
A few days before, he criticized regulators, and flayed the auditors concerned. “What are our auditors doing? Both internal and external auditors really have looked the other way or failed to detect. I am sure the profession of chartered accountants and those who control the discipline of the profession will start introspecting and see what are the legitimate actions that need to be taken.” This, by the way, was his first reaction to the Rs 11,400-crore scam.
Everybody except Finance Ministry is guilty: Jaitley But what on earth were your doing, Mr. Jaitley? And what was your Ministry doing? Isn’t it the administrative ministry for the Punjab National Bank (PNB)? Doesn’t it control PNB and other public sector banks (PSBs)? Don’t you have directors on the PNB board? Even if those directors proved to be incompetent, don’t you have any ministerial oversight? What was the Department of Financial Services, which is part of your Ministry and which controls PNB and other state-run banks, doing?
The Finance Minister must answer these questions before hurling allegations, sermons, and homilies at CAs and others. He should ponder over the famous Shakespearean quote: “The fault, dear Brutus, is not in our stars, but in ourselves, that we are underlings.”
Evidently, Shakespearean wisdom is of little use for Modi’s ministers. So, Jaitley went on to pontificate: “Supervisory agencies… [should also] introspect what are the additional mechanisms they have to put in place to make sure that stray cases don’t become a pattern and it is nipped in the bud.”
But, Mr. Minister, haven’t you already tried a zillion mechanisms? Whatever happened to Indradhanush that you had launched with much fanfare in August 2015? Your Ministry also talked about Indradhanush 2.0 in February 2017. You had also constituted something called Banks Board Bureau under former CAG Vinod Rai. What did it do, if at all, it did anything? It certainly has failed to even discover the fraud at PNB, let alone check it. Had a junior official not retired last year, we won’t even have come to know about the scam.
The Modi government controls the Enforcement Directorate, the Central Bureau of Investigation, the Serious Frauds Investigation Office, the Directorate of Revenue Intelligence, the Financial Intelligence Unit, etc. Then there are the Reserve Bank of India, the Central Vigilance Commission, the Comptroller & Auditor General, a myriad of vigilance departments, auditors, parliamentary committees, and so on. Come to think of it, how many persons and institutions are involved to check fraud; and yet the fraud continued for almost eight years. So much for na khaoonga, na khaane doonga.
How did the scam happen? Well, Nirav Modi seems to have drawn inspiration from the Shah Rukh Khan-starrer Om Shanti Om, especially the dialogue that summed up the theme of the movie: “Kehte hain agar kisi cheez ko dil se chaho … to puri kainaat usse tumse milane ki koshish mein lag jaati hai” (If you desire something from the core of your heart, they say, the entire universe conspires to get that to you).
The universe of Indian system definitely helped, if not conspired with, Modi to rob the PNB. Helped Nirav Modi by being blind to the longest bank robbery in the history of mankind—that is, if we assume that some of them were not complicit. Nobody was bothered—top bank officials, the PNB board, all manner of auditors, the Ministry of Finance, the Reserve Bank of India, Parliamentary committees, Economic Offences Wings, the Chief Vigilance Commission, the Comptroller & Auditor General, the Serious Frauds Investigation Office (SFIO), et al.
Remember the nursery rhyme Humpty Dumpty? “Humpty Dumpty sat on a wall, Humpty Dumpty had a great fall; All the king’s horses and all the king’s men couldn’t put Humpty together again.”
The Nirav Modi-Mehul Choksi saga has two differences with the rhyme, though. First, our Humpty Dumpty didn’t have a fall; he is having a gala time in an expensive hotel in the US. It was the wall, the PNB, that had a fall. Second, the king’s horses and men never tried to avert the fall. One need to be a moron to accept that so many people for so long could not detect the Rs 11,400-crore hole in the balance sheet of the country’s second largest PSB.
Six years ago, former Justice Markandey Katju had controversially said that 90 per cent of Indians are idiots, without “brains in your heads.” Evidently, the Narendra Modi dispensation believes that the correct percentage is over 99: you feed them any fairytale and they’ll believe it.
While it is true that the scam began under the Congress, it is undeniable that it continued for almost four years under the BJP government. This is despite the fact that there were a number of courageous whistleblowers. In 2013, the then government-appointed nominee director on the Allahabad Bank board Dinesh Dubey had questioned the grant of loans to Gitanjali Gems even as Choksi was not repaying the old ones. Dubey’s opposition was ignored and he quit the bank’s board soon after that.
Hari Prasad SV, the owner of a Bengaluru-based Gitanjali franchise, reportedly informed the Prime Minister’s Office (PMO) in the middle of 2016, alleging that Choksi-promoted business house too has loans worth about Rs 10,000 crore with a pittance of a collateral—Rs 30 crore. Apparently, no action was taken following the complaint. Gitanjali retail managing director Santosh Srivastava (2009-13) had also apprised the authorities about the fraud, but again there was no action.
Nobody heeded to the warnings of the whistleblowers. The most conspicuous feature of the Nirva Modi scam is its time span; it continued for over seven years. What, pray, happened to the daily, weekly, and other reports prepared by the bank at different levels? What was the bank’s vigilance department doing? Whatever happened to the ministerial and parliamentary oversight? And the CVC, the CAG, the RBI? All the king’s horses and all the king’s men slept all along.
One has to be a bhakta to believe that the Modi government can be absolved of all blame for the loot of PNB. If it was not collusion, it was certainly ineptitude of the highest order. The question is: What is the solution? The BJP’s and the government’s answer is: Honest and competent political leader can preclude such loot. It is the wrong answer; accordingly, all solutions emanating from it are logically flawed.
For instance, Business Standard reported on February 26 that “the government is revisiting plans of a bank-holding company. Such a company will hold all of the Centre’s shares in state-owned banks and raise capital for them. The holding company was first proposed by Finance Minister Arun Jaitley in his 2015-16 Budget. The Vinod Rai-led Banks Board Bureau (BBB) was set up in February 2016 as a precursor to a bank-holding company.”
There may also be some new version of Indradhanush on the cards. There may be some revamp of the BBB, though nobody knows what it was doing when Nirav Modi was robbing PNB. As I mentioned earlier, the wrong answer has resulted in a situation that the government can contemplate nothing except tired, failed ideas.The correct answer is privatization, which the government has typically ruled out. “This [privatization] involves a large political consensus. Also, that involves an amendment to the law [Banking Regulation Act]. My impression is that Indian political opinion may not find favor with this idea itself. It’s a very challenging decision.”
But when did Prime Minister Modi care about political consensus, or even the views of his own ministers? Did he consult them when he decided to invalidate 86 per cent of currency?
The fact of the matter is that Modi believes in statism and socialism; as chief minister of Gujarat, he set up Gujarat State Petroleum Corporation, a public sector undertaking (PSU), which is bleeding the exchequer; as Prime Minister, he is yet to privatize a major PSU; even that bane of the taxpayer, Air India, has not been sold. The government doesn’t believe in privatization; it doesn’t want to recognize the correct answer.
We can see clearly why it is the right answer if we analyze why bank nationalization is evil. Bank nationalization, we are told, means state control over big money (which is good), concern for the poor, financial inclusion, and other nice things.
Nation means Neta
First and foremost, we should be clear about the very concept of nationalization. On the face of it, it sounds laudable; the nation, rather than a bunch of fat cats, must control a most important aspect of the economy. Isn’t this the way it ought to be? Why should greedy, immoral capitalists own banks? It is bad enough that they own corporations elsewhere; their control over banking can be disastrous, leading to more concentration of wealth in the hands of a few. Ergo, banks should be nationally controlled.
Quite apart from the philosophical and moral aspects of this socialism-friendly line of thinking, there are practical issues involved here. For, in practice, nation boils down to government, and any government is run by politicians and bureaucrats. Now, these two sections of the society are also universally (and rightly) regarded as venal, parasitical, and worse. So, nationalization of banks, or any other company, translates into the control of the key sector passing into the hands of netas and babus, thus increasing the chances of abuse and corruption by a million times. For, in effect, P. Chidambaram, Lalu Prasad Yadav, Arun Jaitley, A. Raja, etc., are the nation.
This is not just libertarian theory which propounds that the business of government is not business; cronyism, political intervention, and bureaucratic bungling in banking have happened in India with frightening frequency and intensity ever since Indira Gandhi brought the biggest banks under governmental control in 1969. This is evident from the performance of public sector banks (PSBs). While the return on equity (ROE) of PSBs was -2.8 per cent in 2016-17, in the case of private banks it was 12 per cent. The gross non-performing assets (NPAs) of PSBs stood on September 30, 2017, at Rs 733,974 crore and of private banks at Rs 102,808 crore. Gross NPA ratio of 12 private banks, though it rose from 3.5 per cent in September 2016 to 4.3 per cent in September 2017, was much lower than that of public sector NPAs. public sector NPAs were 13.69 per cent in the June 2017.
Another reason PSBs should be privatized is that nobody has a personal stake in them. For instance, if Indusind Bank goes bust, the promoters, the Hindujas, suffer; but if a PSB goes down, the chairman and the top brass don’t.
It is argued that if PSBs are sick, the sickness should be cured. There is no point in privatizing them, for you don’t throw the baby out with the bathwater. But what do you do if the baby is evil, with satanic omens like ‘666’ inscribed all over it? Remember Gregory Peck-starrer Omen? PSBs are evil, guzzling taxpayer money, supporting crooked businessmen, and fattening corrupt politicians and bureaucrats.
Another big reason offered is that state-run banks provide credit access in villages. Bank branches in rural areas went up from 8,261 in 1969 to 65,521 at the turn of the century. Since then, the number almost doubled to 126,337 in 2015. Isn’t it impressive? Would profit-hungry private bankers have done that?
All this is hogwash, for if private banks opened over eight thousand branches till 1969, there is no reason to believe that they won’t have set up many more since then. We should not forget that the private sector does any job better than the public sector. It was, for example, the entry of private companies that has revolutionized the telecom sector. Not long ago, the telephone was a privilege; now even the poor have phones.
Second, there is the issue of the quality of credit access. India’s rank on the indicator of branches of commercial banks per 100,000 adults is 89 out of 167 countries. And even there, it is the better off sections of villages that enjoy banking facilities. The rest have to do with the Reserve Bank of India’s creations—business correspondents. They have been rightly termed as ‘barefoot bankers.’
Third, it is fallacious to assume that if government doesn’t offer banking facilities to the poor or villagers, they won’t get them. The fact is that the poor and villagers use thousands of goods and services, most of which are provided by private players, be it of the local plumber, electrician, grocer, or doctor. Why should private enterprise offer all goods and services in every part of the country except banking?
Further, state-run banks have moral hazard. The banker knows that if a loan goes bad, he will not suffer because, working in a quasi-government organization, he enjoys the security of tenure; the politician favoring his industrialist crony does get lose anything in the case of default; even the defaulting businessman knows that nothing would happen to him in the event of non-payment as he can manipulate the system. The only guy who loses out in the deal is the taxpayer because it is he who has to foot the bill for every Mallya and Modi. In the last 11 years, he has already shelled out Rs 2.6 lakh crore; in the next two financial years, he would pay another Rs 1.3 lakh crore.
In a nutshell, there is no rational, economic reason why banks should be in the public sector. As there was no rational, economic reason for the nationalization of banks about half-a-century ago.
This is not to say that bank privatization is the panacea for all financial ills and scandals. There will be frauds as well as genuine business failures, but if there are no PSBs, the taxpayer would not end up paying for the sins of the Mallyas and the Modis. As they say in Hindi, Na rahega baans, na bajegi baansuri (there won’t be any bamboo, so there won’t be any flute).
By Ravi Shanker Kapoor