PNB scam a symptom of deeper malaise

 Finance is the life blood of trade, commerce and industry. Since early days the banking sector has been the backbone of an economy, because it provides liquidity for families and business to invest in future. In short, the development of a country depends on banking sector. If the banks collapse, the economy collapses as we have seen during the 2008 subprime crisis and so on. 

The recent PNB scam raises many questions in the minds of the public, investors etc., it also raises the questions on the credibility of the entire banking sector in the country.  It raises questions regarding entire functioning of banking system. 

Normally, a company’s financial statements have to be approved by internal auditors and then by statutory auditors.  Even they didn’t find the frauds in the books of accounts, which means only two possibilities are left out, either they are involved in the fraud or else there is a problem in the audit mechanism of banks. In either case, the public is going to be affected first and as a whole the trustworthiness towards banks; then the reliability of the country takes a beating among the foreign investors. 

According to the management theory, even if an employee of a company makes a mistake, the company is responsible.  And this is not the first time it has happened. We have seen what happened to the Vijay Mallya case even after three years. The more such cases like Nirav Modi, Rotomac Kotari etc. appear on the scene, the more the reputation of the country is degraded in global markets, because these people are just looting public money and damaging the economy of the nation. We have seen Enron accounting scandal in US and insider trading case with Rajat Gupta, how the law punished such big executives in a short span of time. 

The increasing trend of such bank frauds in the country certainly creates significant impact on FDI, FII and FPI.  Our nation needs more global investments and such swindles will bring down investment inflows and will make a dent in the overall growth of the nation.  

Such scams result in a chain process as we can see the losses incurred in the capital markets by companies like LIC etc., which invested in the public sector banks. This development raises one more question, does privatisation put a full stop to the whole issue. Unfortunately, the answer will be still a big ‘NO.’ Because the problem is not with who owns the bank, but what sort of human capital is working in such banks. We need ethical bankers, ethical regulators, ethical politicians etc. 

Two decades ago, when the banks were computerized, most of us believed corruption or human interventions will be reduced but in the case of PNB it is just the reverse, the person concerned has given the login details to the client and there is a disconnect with Swift banking and the core banking systems. So, it clearly shows that we lack ethical practices due to various reasons.  

Most people are becoming materialistic and target-oriented professionals and they want their desires to be fulfilled by hook or crook. It is high time major regulators such as RBI, SEBI, IRDA make Forensic Accounting mandatory so that the loopholes in the banks, companies will be known and damages can be controlled. 

The nationalised banks are not ready to give loans or not investing in emerging startups. At the same time such banks invest heavily in scam companies or give loans to only those people who will receive money and fly away to foreign countries.  On the other hand, foreign institutional investors like Softbank, Tiger global management, etc., are aggressively investing and encouraging the Indian startups like Ola, Flipkart, Paytm,  Policy Bazaar, etc., 

Our Prime Minister and Chief Ministers across different states are spending huge public money to conduct various international business summits by calling foreign investors to invest in our country.  If the core systems are not in order, how will an investor have confidence to invest in the country?  Also, the regulators of Hong Kong are also asking the status report of the banks operating their branches in that country.

The Government of India introduced major reforms such as use of Aadhaar for direct benefit transfer, demonetisation, Goods and Services Tax and Bankruptcy Reforms.  To implement or be successful, a country must have solid and transparent banking system.  Such reforms helped the country to have the ease of doing business ranking improved from 133 to 100 this year.  Also, it helped in upgrading in Moody’s rating.   To retain such ranks and upgrades, the country needs ethical leaders, ethical people. 
It is high time policy makers, regulators initiate necessary steps fast to stop such scams/frauds.  Also, we must have stringent rules and ethical practices or code of conduct to have proper banking practices so that public’s money and investors’ money can be protected.

The country is paying a penalty for its carelessness like leaving unused borewells wide open where children fall and die inside.  We are observing that morality of the people has become very low, hence we need an ethical India along with Digital India. A high level of thinking of the people will definitely result in great wealth and happiness for the nation.  To conclude, human values will result in value creation.  

(M Chandra Shekar is a faculty and Kumaran a student of Institute of Public Enterprise, Hyderabad)