Why is our banking system so weak?

  By Vijay Darda | 19-02-2018

How the banks, which do not hesitate to harass farmers for the recovery of debt, become so lenient towards scamsters? People are reading and sharing a post on social media these days with great interest. This post is in the form of a letter to Nirav Modi. The letter goes something like this:

Nirav Modi,

Be happy wherever you are and keep prospering without worrying about the debt. The bankers will recover that debt from us in small amounts of Rs 50s and Rs 100s. We are repaying Mallya’s debt right now and will repay yours too after that. We are all accustomed to all this. We sometimes feel that we earn only to repay the bank loans of rich and famous like you; maybe we were born for this reason only. But don’t you worry even a bit, we all countrymen will emerge patriots by repaying every penny of the money embezzled by you!

This social media post may sound sarcastic but it is a fact. The scams and frauds that are committed in banks have to be compensated (read repaid) by the common man of this country. Simply put, the money which the banks have belong to the common man. You get interest at a fixed rate against the money you keep in the bank. But when you take a loan from the same bank, you have to repay the same at a higher rate of interest. This difference in the rate of interest is the profit of the bank which is run on this profit.

If the bank earns more profit, it is expected to pay interest at a higher rate on the deposit amount. But this is not happening because the bigwigs have defalcated money of the bank. The banks are convinced that this money is out of bounds for them. According to the figures available till September 2017, the amount of NPA stands at a staggering Rs 7.34 lakh crore. Talking of NPA, the government would earlier put it at Rs 1 lakh crore or at the most Rs 2 lakh crore. But the accounting system which the then governor of Reserve Bank of India Raghuram Rajan introduced made the situation all the more clear.

The dead debt is much more than the amount which is being revealed today. Big corporate and business houses have gulped down the money of the banks. While someone has gulped down Rs 2 lakh crore, some others have swallowed Rs 1 lakh crore or Rs 50,000 crore. The diamond industry and developers have embezzled largest amount of money of the banks. There are many people who are enjoying a lavish lifestyle at the cost of the banks. They own private jets and have arranged for luxury abroad. In reality, scamsters bigger than the likes of Vijay Mallya, Lalit Modi, Nirav Modi and Mehul Choksi, are hiding abroad. Mallya, Modis and Choksi were exposed and action was initiated against them as they have been enjoying a lavish lifestyle. But what about those who have not been caught yet. Who will nail them? You would be surprised to know that in case of dead debt India is fifth in the world.

The question is how can the bank be so nonchalant after giving such a huge amount in loan? Banks sit quietly because they are involved too. If a farmer fails to repay even three installments of his hypothecated tractor, the same is seized. The recovery agent sent by the bank humiliates the farmer. The bank does not even think how that farmer would do farming and repay the loan when his tractor itself is confiscated? Though the government talks of bringing about transformation for the poor, small traders and small industries, it is extremely difficult for the small and medium enterprises to get small business loans from the banks. Simply put, these banks literally kill entrepreneurship.

As far as the scam is concerned, people in the banking system conspire and connive with the scamsters. Had no one connived, would Vijay Mallya, Lalit Modi, Nirav Modi or Mehul Choksi have succeeded in their nefarious designs and fled the country? How would the common man believe that the officers concerned in the government knew nothing! It is even more serious if they were really not aware that someone is fiddling with the country economy. If the Punjab National Bank scam started in 2011, why was it not detected for so many years?

Quite surprisingly, the very initiative to make the banking system completely safe has not been taken yet. The system will be termed safe only when someone trying to deceive the bank is caught at once! If the present situation prevails, it will become even more dangerous. While some people will flee abroad after committing frauds, the country’s economy will be ruined. Therefore, instead of blaming each other, those in the government should catch these scamsters and make sure that no scam occurs in future. Also, there is a need to make the banking board more powerful.

Before I conclude…

The news from Bastar area in Chhattisgarh that a woman donated body of her young son to the medical college as she had no money to carry the mortal remains back to her village and perform the last rites, has disturbed me. How tragic! What kind of development is this which does not care for the poor! Not only the government but the entire society should think about this. Our real battle surely should be against poverty.

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