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Why is our economic system gullible to frauds?

  By Vijay Darda | 08-05-2017

Bad debt figure crosses Rs 6 lakh crore mark, bringing functioning of banks under cloud

There is no decline in the reports of frauds and scams involving the banks that are making headlines on a daily basis. Just came to know about the latest case of embezzlement. Zoom Developers having operations in Mumbai and Indore fraudulently obtained loans to the tune of Rs 2,650 crore from 25 banks. Prior to this, we have seen the cases of Vijay Mallya and Jatin Mehta who fled the country after committing frauds on banks.

There are allegations that Vijay Mallya and Jatin Mehta siphoned off Rs 9,000 crore and Rs 7,000 crore respectively before fleeing the country. It may be recalled that the 57 companies, whose names the government had given to the Supreme Court in a sealed envelope in June last year, owed Rs 85,000 crore to the banks. It is only a part of the amount that banks have not been able to recover. Replying to a question in June 2016, the government had told the Lok Sabha that the NPAs (Non-Performing Assets) of 49 public and private banks, i.e. bad debts, have gone up to Rs 6 lakh crore.

So the question arises as to how the banks fall victim to frauds on such a large scale? Either the bank officials did not understand anything or they were themselves involved in these frauds. There can be no doubt on the efficiency of the bank officials, which simply means that it has been the case of their collusion in this fraud! If a farmer wants to take a loan for a micro business or a house or a vehicle, the banks ask for so many papers that it leaves no scope for any fraud. If you are taking a housing loan, the records of the last 20 years of that land are traced. Every paper is examined and verified. When I had raised this issue in the Parliament asking why farmers are not being given loan for the purchase of cows and buffaloes, the then finance minister P Chidambaram had denied it. I had illustrated with example to prove that those who had sought loan for purchasing cows and buffaloes were told to bring certificate of eligibility for drawing milk! You may feel shocked on hearing this but this is the reality. If the bank does not want to give loan then it will ask for such certificates and documents which anyone just cannot provide. But if there is collusion with big industrialists then the requirements for all such papers are kept aside. Mini small scale industry is also not given any concession. They also have to run from pillar to post to obtain loans.

I had been a member of the Standing Committee on Finance for 14 years. The committee gave a number of suggestions to improve the banking system but the banks never follow them. Many such incidents came up before the committee which surprised the members. I wrote a letter to the chairpersons of all the banks seeking information about people whose debts had been declared NPAs and who were now doing business under a different name? But no bank replied to that letter! I did not get any reply despite sending a reminder! Finally I wrote a letter to the finance ministry asking for information but did not get any reply from there too! You can understand how the fraudsters are protected.

Those who defraud banks enjoy themselves and bank cannot recover money from them. In fact, this money belongs to the common man because the banks earn profits by distributing their deposits as loans but due to such fraud, the bank incurs losses. For example, on an average, you get 6 per cent interest on your deposit, but when you take a loan from the bank, you have to pay an average interest of 12 per cent. If a big amount of this 6 per cent profit of the banks becomes NPA, the loss is eventually thrust upon the common man. Interest on deposits can increase if the bank earns profit and there are no bad debts. Thus, if lower interest is being paid on the deposits then the fault lies with the functioning of the banks, which are putting the money of the common man in the hands of industrialists. I believe that in these cases unless the long arms of law catch up with all the concerned right from the bank officials to the chairpersons, the scandals will not stop. The investigation should be so fair that no one should be spared but sadly this is not happening.

After all, who will answer the question as to how Vijay Mallya fled with Rs 9,000 crore and Jatin Mehta decamped with Rs 7,000 crore? Who will explain that when Vijay Mallya’s company was sinking how was he given loan on the basis of old assessment? Certainly, there must be complicity of the banks in this whole affair! Does the country not have the right to know which bank officials are hand in glove with these scamsters?

We should be grateful to Raghuram Rajan to a great extent for introducing transparency in the system because of which we are now aware of the scandals, but I believe there is a need for greater transparency. Even now the names of those who have swindled the money of the banks are not being made public. It is argued that it will affect the industry but I believe that such statements are made to save the scamsters. If someone is party to a scandal, why his name should not be made public? When the recovery team goes to the village to seize the tractor or other belongings of a farmer for the recovery of loan and insults him publicly, why should the scamsters not be dealt the same way. Farmers and small borrowers fail to pay loan installments due to some genuine problem but they never try to perpetrate any fraud. On the contrary, the businessmen who commit fraud do it with the intention to swindle.

In fact, the finance ministry, the agriculture ministry and the banks should develop a system so that the farmers and agro industries (dairy farming, food processing, and cold storage) should get cheaper loans. What is needed is a critical thinking that no economy can promote defaulters because it will disrupt the entire structure of the economy. Raghuram Rajan also said that the rules of RBI should be strictly adhered to in case of NPAs.

It is good that private banks have improved their customer service. Improvement in nationalized banks too is necessary. This is an era of competition. I would like to mention here that the chairperson of State Bank of India Arundhati Bhattacharya has taken several steps to bring in reforms but there is still scope for a lot to be done. Remember that if the banking system is not reformed then the country will not be able to move ahead on the path of progress!

Before I conclude…

S S Rajamouli has really proved to be the Bahubali of the film world. The unmatched blend of historical fiction and his imagination has proved to be a milestone for the Indian film industry. Not only in the country but also abroad, first the ‘Bahubali: The Beginning’ and now the ‘Bahubali 2: The Conclusion’ have become superhits! Earning record aside, in my view he has taken the Indian film world to the global level. There is no match to Rajamouli in terms of technique and imagination.


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Why is our economic system gullible to frauds?


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