The Big Story: Pre-emptive action

Days after Finance Minister Arun Jaitley blamed everyone but his own government for not cracking down on the banking sector in a manner that would have prevented the Punjab National Bank-Nirav Modi scam, his ministry has decided to act. On Tuesday, the ministry said it had directed all managing directors of public sector banks to examine every Non-Performing Asset of more than Rs 50 crore for possible fraud. It also gave them a 15-day deadline to identify operational and technical risks. Among the things these bank chiefs are expected to do is “learn from best practices and pinpoint strategies including tech solutions [and] clear accountability of senior functionaries.”

In one sense, this is an admission that the Reserve Bank of India, which is meant to regulate behaviour in the banking sector, has not done its job. Banks have of course been furnishing data to the RBI and, in 2015, it put in place a large framework by which to identify fraudulent loans. The RBI data, accessed by Reuters, shows that public sector banks reported 8,670 loan fraud cases in the last five years alone, tallying up to $9.58 billion (Rs 62.40 thousand crore). Analysts tend to believe this is an underestimation of the problem as well, because banks are likely to only report fraud cases once they have given up trying to recover the loan.

But it is also an acknowledgment that the government, which is the owner and custodian of the public sector banks, has failed to do enough to improve governance. From the failure of the Banks Board Bureau to the disappearance of Mission Indradhanush, the government’s efforts at reforming the functioning of public sector banks seem to have gone nowhere, putting the sector in the potentially dangerous position it is in now. Public sector bank stocks have dropped by as much as 12% since the fraud at Punjab National Bank first emerged.

The new directive from the government is likely to result in another round of bloodletting. Spurred on by the Reserve Bank of India over the last few years, banks have been forced to properly identify the truly bad loans on their books, so that they can be properly classified and the government can estimate the scale of the problem. That scale turned out to be gigantic, and so the government announced a huge bond recapitalisation plan in 2017 in the hope of addressing some of the concerns.

This new demand, which will involve looking back over all those non-performing assets to evaluate them for fraud, also means officers at those banks, past and present, are going to be on tenterhooks. How deep will the investigation go? What will count as fraud? Will the fear of being pinned down by this make current lenders reluctant to give out loans? By and large, such an effort is likely to have a positive outcome, but, coming as it does at a time of crisis, if it is a one-off simply meant to prove that the government is taking decisive action, it will eventually fall by the wayside just like the previous efforts to reform public sector banks.

The Big Scroll

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Punditry

  1. Scheduled Tribes are India’s poorest people, writes Swagata Yadavar in India Spend, saying five out of 10 in that large classification fall into the lowest wealth bracket.
  2. Mihir Sharma writes for Bloomberg about attempts to sell Uttar Pradesh Chief Minister Adityanath as a business-friendly politician in a state where encounters have become ordinary.
  3. “What the UPA government could not or would not do, the BJP in 2014 promised to do, so much so that its electoral manifesto lifted large chunks from the Swaminathan report,” writes Jayati Ghosh in Mint. “The ruling party must now be ruing that decision, because it has been even less able to implement any of the proposals than the previous government.”
  4. Gautam Bhatia in the Hindu writes about a new book that recounts the path towards an independent Indian democracy, and what it says about our current state.
  5. “There are two simple tests to determine the state of law and order in a state. Do the criminals fear the police? And, secondly, do the people have faith in the police? The Yogi government appears to have passed the first test. It should now move to transforming the police into a citizen-friendly force by reforming, restructuring and rejuvenating it,” writes Prakash Singh in the Indian Express.

Giggle

Don’t miss

Vinayakk Mohanrangan writes on how Suresh Raina’s return to form could solve India’s middle-order problem in One Day Internationals.

Being promoted to No 3 ahead of Virat Kohli was an invitation to go big from the first ball. One of India’s problem areas in T20Is was a sedate batting powerplay (by T20 standards) and this team clearly wanted to address that without having to sacrifice Kohli. And that’s where Raina came in handy.

In the first match, he hit the third ball he faced for a six and the fourth for a four. In the second match, the third ball he faced was sent to the boundary. In the third match, all it took was one ball for Raina to score his first six - a stylish whip over square leg.

Raina was batting with the confidence of a man who has played many a crucial innings for the Chennai franchise at this very position. There was a hint of fearlessness to his presence in the middle during all three outings. He did not seem to get bogged down by the pressure of having to attack without getting his eye in - a task especially harder on comeback as failures might mean end of the road.