The Big Story: Bottom line

Finance Minister Arun Jaitley finally spoke up last week about the massive Punjab National Bank-Nirav Modi scam. For days, the Centre had trotted out other leaders to level wild allegations instead of bringing out the Cabinet minister relevant to the matter. Jaitley’s opinions on the matter were quite simple: Everyone else had failed, including the bank management, the auditors, chartered accounts and the supervisory agencies. There was no mention of his government, even though it is the custodian of public sector banks and responsible for overseeing the regulation of the banking industry.

Over the weekend, Jaitley made similar noises. Speaking at the Global Business Summit in Delhi, he said that “industry needs to get into the habit of doing ethical business” and bemoaned the fact that “we politicians are accountable but regulators are not”. In other words, Jaitley is unhappy that the tenure of Narendra Modi will be marred by this case of alleged fraud, which is estimated to be worth Rs 11,400 crore (but could potentially be much higher). Bharatiay Janata Party leaders will no longer be free to say things like “no scam has come out in our time”. As far as Jaitley is concerned, the government is going to be left holding the bag on this for no fault of its own. Why didn’t everyone else do their jobs?

But did the government actually do what it promised? There is no doubt that Jaitley, who for a substantial period of his tenure was splitting time between two important ministries, has struggled to handle what is being known as the twin-balance sheet problem – where banks have massive non-performing assets on their books and companies are heavily indebted, leaving no one free to pursue fresh investments that could lead to growth. Public Sector Banks are in a particularly large hole in this matter, primarily because they dominate the lending market.

To its credit, the Modi government actually recognised the need for better management of Public Sector Banks and tried to do something about it. In 2016, it announced a Banks Board Bureau under former Comptroller and Auditor General Vinod Rai to improve governance at state-owned banks, and make recommendations to the government on appointing top-level officials to these banks. However, instead of heeding the advice of the Bureau, the government has spent the last two years studiously avoiding its recommendations, bypassing its suggestions and generally carrying on as before. Reports now suggest the Banks Board Bureau will be shut down once Rai’s tenure ends.

If this is the status of an institution that the government itself set up to increase accountability, what could be the position of other bodies meant to oversee the banking industry? Some have already spoken of how the Reserve Bank of India may have “been too occupied in counting old currency notes and dealing with the other damaging consequences of demonetisation to pay enough attention to its real job”. Others have noted that, though the drive towards Aadhaar-linking and other Know Your Customer efforts have expanded across the country, the result has been that banks have tended to simply rely on copious documentation rather than “actually knowing and assessing the integrity and expertise of [their] borrower”.

This suggests that the failure also lies in the hands of the government, and the manner in which it has treated the regulators and other institutions meant to be independent. As political scientist Milan Vaishnav wrote last week, the conduct of the government suggests Indians should no longer “take the health of India’s apex institutions – Election Commission, RBI, Supreme Court – for granted”. This extends to the banking sector and calls to mind Modi’s campaign promise to be the chowkidar, the watchman, for the country’s wealth, saying he would ensure no one would be allowed to loot it. Far from improving defences, the government seems to have been undermining existing watchdog bodies. Jaitley might be right in pinpointing a massive regulatory failure in the PNB scam, but the full picture makes it clear how that failure is a reflection of his government’s inadequacies.

The Big Scroll

Nirav Modi-PNB fraud: To reform public banks, start by addressing employees’ sense of inferiority.



The PNB-Nirav Modi scam could have a negative ripple effect on India’s banking sector.

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Punditry

“Populists repudiate pluralism, for the people can only be one and they are the people,” writes Christophe Jaffrelot in the Indian Express. “This explains their tendency to disqualify their rivals, and even reject the multiparty system of democracy. For them, adversaries are enemies and elections like wars that are aimed at eliminating the others – hence formulas like ‘Congress-mukt Bharat’.”

“In the last lap of [Modi’s] current occupancy of the PMO, it would be foolhardy to put blinkers on and continue business with the same level of chutzpah,” writes Nilanjan Mukhopadyay in the Economic Times. “The situation has altered astonishingly since the Uttar Pradesh assembly poll verdict, when 2019 was seen as a settled affair.” “The government must give up the obsolete idea that all components of a product should be manufactured domestically. The newly industrialising economies have progressed because they have allowed their industry to participate in the back-and-forth of intermediate goods in the global value chain,” says a leader in Mint. “Prime Minister Narendra Modi’s 2019 re-election bid may see the return of election strategist Prashant Kishor to his side,” writes Prashant Jha in the Hindustan Times.

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