If it sounds partisan, all that one can say is that the truth hurts. Like all other big-ticket scams, the blame for the latest too can be left at the door of the previous government. The Nirav Modi heist began sometime in 2010 and ended this January when the senior PNB executive acting as his paid factotum was no longer there to authorise further plunder. Absence of internal and external regulatory oversight and the failure of the bank’s own audit mechanisms compounded the scam. The impartial and fair-minded, in fact, can sympathise with the Narendra Modi government. Its plight is best summed up by a pithy Hindi proverb: karey koi, bharey koi (one errs, someone else pays). Modi is obliged to carry the can for the sins of the UPA.

Unfortunately, even the Modi government does not seem to be inclined to take the only step that can greatly insulate the poor against their being left with the bill at regular intervals for the loot and plunder of public funds by the criminal and the crooked of the land, regardless of the colour of their passports. In one word, that solution lies in reversing the original sin committed for purely electoral reasons back in 1969. A bit of background will help.

In 1969, engaged in a bitter power struggle with the old guard in the Congress, Indira Gandhi burnished her pro-poor image by resorting to the simple stratagem of bank nationalisation. Fourteen banks were placed under the control of babus in the Finance Ministry. And that has been the bane of the public sector banks ever since. Anyone with access to the ruling politicians could tap huge bank funds for the asking. Banking norms and good practices were abandoned. A nod from the Finance Minister or his minions was enough. Due diligence before disbursal of tens of thousands of crores of rupees became redundant.

We are all aware of the pain the loot of the public sector has inflicted on the people, particularly the poor for whose sake Indira Gandhi had supposedly nationalised the banks. Eating greatly into the taxpayers’ money, which otherwise would have provided vital public goods such as education and health, the government now is hard put to recapitalise the banks saddled with humongous non-performing assets. Since the advent of Narendra Modi, the phone calls to banks to sanction fresh loans or to evergreen the old ones have stopped. Of course, there is no question of this Finance Minister, his aides or his son doing so.

Yet, the Modi government was slow in sorting out the terrible legacy of NPAs. Between 2007-2008 and 2012-2013, bank credit swelled from some Rs 20 lakh crore to over Rs 60 lakh crore. Not all the increase is explained by the 2008 global financial crisis. Admittedly, the effort to pin down the defaulters has not been easy. The flight of Vijay Mallya, who left a hole of over Rs 9,000 crore with the banks, was a PR disaster, though no one in the NDA had anything to do with the actual sanction and disbursal of the loans.

Even as Mallya exploits every trick to evade extradition, a potentially bigger scandal has come to light. If anything, reports of fraudulent withdrawal of over Rs 11,400 crore by the high-profile jeweller, Nirav Modi, from PNB should raise fresh questions about the validity of the public ownership of banks. This is not to say that the private sector banks are angels. No, they too very often pander to crony capitalists, unmindful of the aam aadmi’s interests. Yet, being private, there is someone who can be held accountable and, if found guilty, penalised. A fall in the share price following a scam hurts the promoters the most. In sharp contrast, the public sector banks are accountable to no one in particular, with the government feeling obliged to pump in taxpayers’ money periodically to make up for the mismanagement and frauds a la Air India, if you like.

In the post-liberalisation era, there is no rationale for the government to own banks. Indeed, with the exception of the State Bank of India, which must necessarily stay government-owned, all other banks must be privatised, now more than at any time before. The NDA government enacted the Insolvency and Bankruptcy Code, 2016, which for the first time empowers banks to extract the loaned money from wilful defaulters. Notice the marquee names in business and industry who have gone under thanks to the sincere effort to make them pay up or face the full force of the new law. Thus, the banking code and other related provisions as also a banking sector regulator fully obviate the need for government ownership of banks.

Not unlike Air India, which is deep in the red, thanks to the gross mismanagement by its generalist-managers and the mendacity of ministers in-charge, public sector banks need to be marked out for disinvestment. If it had been a private bank, the chances are a fraudster like Nirav Modi or even a Vijay Mallya would not have been able to withdraw so much money on fake documentation. And in the unlikely event that they somehow did succeed in pulling off such heists, several heads in the top echelons of the banks so plundered would have rolled by now.

In the case of PNB, two top executives, it seems, were in league with Nirav Modi. They will certainly be traced and punished. But the real perpetrator flew the coop long before the registration of the police case. It is always hard to impound someone’s passport on the assumption that he might flee the country. Courts offer protection to innocents and suspects alike. For proof, see how the ED-CBI’s efforts to impound Karthi Chidambaram’s passport have came to naught. In the case of Nirav Modi, no Preliminary Enquiry (PE) was registered till late January, so there was no way he could have been prevented from going abroad.

Since crooked businessmen will remain crooked, why allow them to loot the government-owned banks? Why not sell-off the public banks and use the proceeds to reduce the deficit or to invest in infrastructure. Note that over 70% of the banking sector is government-controlled. Yet, leaving out SBI, the market capitalisation of all government banks is lower than just a one private sector bank, though when it comes to NPAs the former beat the latter hollow. The point is simple: when will the rulers draw the right lesson from the periodic raids on the banks by unscrupulous businessmen? Privatisation coupled with a strong regulatory oversight is the obvious remedy. Nothing else will prevent another Vijay Mallya or another Nirav Modi to loot and plunder the publicly-owned banks.

A chance exposure

How did the PNB scam, going on undetected for eight years, come to light? It seems a little oversight by Nirav Modi cooked his goose. After the retirement of his key point-person in the Mumabi branch of PNB, he failed to put his successor on his payroll. And when Nirav Modi’s man approached for the same facility through the Hong Kong branch of another Indian bank, he was told that the officer in PNB, Mumbai, wanted a bribe to do the needful. Unknowingly, it was Nirav Modi’s own employee who lodged the complaint with the Hong Kong branch of the bank, which the latter forwarded to the RBI, setting off a chain of events leading to the exposure of the long-running racket.

 

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