PM Modi, make defaulters pay, not innocent taxpayers

PM Modi, make defaulters pay, not innocent taxpayers

By M.D. Nalapat | 18 February, 2018
What is needed is to check forensically each such loan to ascertain all facts.

As Prime Minister, Narendra Modi has made consequential alterations to traditional policies, the most important of which has been demonetisation, followed by a long overdue rollout of GST. The problem facing the Prime Minister is that, while he is the prime mover of these innovative policies, operational details in their implementation get drawn up by the bureaucracy. We have seen the manner in which the Modi brainwave of demonetisation were fleshed out and implemented within the bureaucracy in a manner that was hugely disruptive. This was evident in the case of GST, which has had to be modified multiple times because of the impractical features of the measure as initially implemented, including its multiple and excessively high rates, as also the bringing in of businesses for reporting and taxation purposes that are so small as to have merited exclusion from the complex reporting methods. These have been made mandatory in a context where access to the internet is still miserably inadequate in several places, and where small businesspersons (realistically those with an annual turnover below Rs 5 crore) do not have the time or the expertise to double up as accountants and lawyers, two professions that have seen a huge bulge in clients as a consequence of the GST as drawn up by unfettered bureaucrats. Such impractical detail springs from the colonial-era propensity of the financial bureaucracy to frame each policy in terms of the immediate revenue that it will bring into government coffers, rather than its impact on growth, especially in the medium and long terms. There are, of course, blind spots in this obsessive search for additional revenue, and the most glaring of these is the state-controlled banking system, into which much treasure is being poured from taxpayer rupees annually. Indira Gandhi nationalised private banks with a deposit base above Rs 50 crore in 1969 “in order to ensure funding for the poor”. Instead, these banks have, since their takeover, been serving as piggybanks for the cronies of politicians. In much the same way, LIC and other government institutions buy and hold on to large chunks of equity in private companies, so that those in power and their favourites can be given profitable sinecures such as directorships and other privileges, some in secret because they are illegal.

What took place between Nirav Modi and the Punjab National Bank is only what has taken place hundreds of times in public sector banks in the past two decades. Government of India has been writing off each year a large number of loans that it believes will not get repaid. What is needed is to check forensically each such loan to ascertain whether (a) fresh loans were given despite existing ones being overdue for 18 months or more, (b) whether the collateral for such loans was sufficient to recompense the bank in case of default, and (c) who the individuals were who recommended the loans that were at severe risk of going bad. Bank officers need to familiarise themselves with handling micro recording equipment, so that verbal orders on the part of senior managers and directors, or from VIPs outside the bank, go on voice record. Each direct or other conversation should be affirmed by the manager concerned in an email or a letter to the individual making the loan recommendation, with copies to seniors in the bank’s hierarchy.

Should such a record not exist, the entire responsibility for a loan gone sour will fall on the manager who gave sanction to the moneys being paid out to those who subsequently defaulted. Some such non-repayments may be because of market conditions or other factors (such as policy changes) over which the individual or company availing of the loan has no control. However, there needs to be accountability for loans given to obvious looters of the public banking system, including where necessary summary dismissal, or stoppage of promotions and recovery of at least part of the losses suffered by the bank from the individual who sanctioned the loan. In cases where the money lost by the bank is in excess of Rs 50 crore, jail time for the officers responsible should be mandatory, unless it can be shown that the loans were made in good faith to those who merited them through their proficiency in business or the professions.

What is unconscionable is to make the innocent taxpayer pay for crimes committed by bank managers and their clients. In an example of the distance Prime Minister Modi is willing to traverse from the conventional, his government has ordered the forcible merger of a Mumbai-based company with a now defunct stock exchange begun by the major shareholder of the former. Oddly, the stockbrokers who actually owed the moneys in default seem to have escaped penal action thus far, while a separate company has been marked for destruction through forcible payment by it of the dues of the other entity. There have been whispers that the move against this company was taken on the instance of a former Finance Minister, who wanted to both destroy an exchange competing with a favourite of his, as well as to protect the parties guilty of default (i.e. brokers) by loading the entire liability onto a separate company. He is said to have made trusted officials in the concerned ministries go ahead with this unprecedented measure of forced merger of two private companies. The best way to prove such conspiracy theorists wrong would be for the Central government to administer in 2018 itself the same medicine (of forced merger) to several dozen other pairs of private companies, so that the losses of one get set off against the profits of another run by the same individuals as controlled the first. In the Nirav Modi case, it seems that an honest bank official refused to “roll over” fraudulent paper in the same manner as his predecessors had done. This made it impossible to conceal the scam, and now—although six years late—the public have been made aware of the way in which a nationalised bank was cheated in connivance with a section of its own staff. The assets of those responsible should be located and used to repay the loans taken, rather than rely on taxpayer rupees for the purpose. The people of this country must not be made to pay the price for losses to banks incurred by dishonest businessmen and ethically challenged bank managers. Through asset sale and through other means, Prime Minister Modi should ensure that the guilty few, rather than the innocent many, pay for the commission of frauds such as those committed in the ongoing PNB-Nirav Modi disaster.

There are 4 Comments

You are right.Modi's well meaning initiatives are being hampered at best and are being sabotaged at worst by the babus.But no one can stop Modi from catching hold of these crooks from abroad, bringing them here,prosecuting them and finally putting them behind bars.In case of Nirav Modi they are publicising the values of assets being impounded.This practice should also be adopted for those defaulters who are still around.Better way will be to announce through print media the passports of all defaulters which are impounded.

Yes, the defaulting Corporate Must be Made to Pay up their bad loans as a common man is forced to, if need be by selling of his property etc, so must the corporate big wigs, all their assets must be attached and the every year jamboree to write of huge loans default on NPAs by the Central Govt Must be Stopped Forthwith and the defaulters made to Pay.

The Bank officers who sanction such loans are complicit in this. They know fully well that the rules are being flouted. Yet they do it for obvious reasons. Quid pro quo. The annual salary of a Bank Manager who can sanction a 10Cr loan is in the vicinity of 10-12 lakhs. Compare this with a cut of 5% cut on a 5Cr sub prime loan, one can surmise the payoff is stunning. He\she sanctions 10 such loans successfully, they can take VRS. Even if they get caught, the money is never recovered from them. It is a jail term and a token fine. So for many it is all well worth it. Hence "holding the Officer responsible" for a case of Nirav Modi sized scam really is not even a slap in the wrist. Officer Shetty in this case can do a 5 year term for this, if at all. One can imagine how much he would have been compensated for his continued 5-year, stellar "customer service" given to NiMo, all of which would have been benamied and would have become intractable. So Jai Hind.

Every time such fraud or scam emerge, everyone has plenty advices. From Panwari to Nobel economists. But practically nothing happens. Plethora of reasons, but in reality it's impossible to prevent each and every scam, unless we raise our standard of integrity. Agreed, there must be enough checks and balances, but there are and there were many. Look at subprime crisis in 2008. It happened in developed western world. Where system are better (not foolproof obviously), and more (comparatively) integrity. Look at US, even if not best, they have much better intelligence or policing, but have highest homicides. No government can afford policeman for every single citizen. And while all private sector failed in 2008, government had to save them with tax payers' money only. But yes, tens of example of harsh punishment may help in reducing this problem. But then you've media, who rush to (wrongly) bring humanity side, by portraying culprit as victim. Everyone agrees such incidents must be stopped, but how? Everyone advice (and multiple many a time), but practically it's difficult and that's the reason that howsoever strong or honest PM is there, the power is miniscule, at least in Democracy for sure.

Add new comment

This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.