Public sector banks not the only bad boys

If there’s an award titled ‘Most Miserable,’ Indian banks would walk it. Until now, public sector banks appeared as the bad boys, but the ongoing ICICI-Videocon saga strengthens fears that even private lenders got a drop on our lax regulations. For RBI Governor Dr Urjit Patel, who played the victim card for not having full authority on public lenders, the ICICI episode offers ground to act swiftly and then press for uniform regulation. It’s true that one cannot prevent and catch all frauds, but if whistleblower Arvind Gupta’s allegations on ICICI are true, Patel would have already lost out for not identifying it beforehand. And the least he could do is to seize the opportunity and punish the wrongdoers, if any, to prove what effective regulation and enforcement can do.

As for the government, it should realise that the devilishly complicated banking problem needs much more than camera-ready gestures like referring cases to the CBI and ED, which often ends up in legal knots. Instead, the government should set up special courts, like it did during the Satyam scandal, and committees to focus and resolve banking cases.

This is pertinent not because there are too many big banks, but there are too many to fail banks. It also forces a rethink on privatisation, but one must remember that protecting retail investors is paramount in banking, and the government of the day invariably bails out the banks—public or private—using taxpayer funds, which is like taking from one hand and giving from another. That’s exactly what happened with Global Trust Bank, which the state-run Oriental Bank of Commerce was forced to absorb.

Banking is the backbone of India’s economy and unlike developed nations, we were overcautious to open up the system and now it’s proven beyond doubt that even excessive reliance on nationalisation isn’t foolproof. What’s needed is for both the government and regulators to ‘perpetually keep the third eye open,’ which is to have effective regulation and enforcement, as success always comes with a risk.