But who do we get angry with? The government (who is the shareholder on our behalf)? The regulator, which is the Reserve Bank.
When
the first lot of 14 banks was nationalised in 1969, one of the things
said in those heady times filled with socialist fervour was that, with
the banks’ resources at the government’s disposal, it might even be able
to abolish the income tax. No one thought then that money would flow
the other way: your tax money would be used by the government to finance
mismanaged banks…because they finance businessmen who then don’t repay
the loans. So who exactly is laughing all the way to (or from) the bank?
Perhaps there is a need for some anger here. But who do we get angry
with? The government (who is the shareholder on our behalf)? The
regulator, which is the Reserve Bank? Bank managements? Bank employees’
trade unions? Those who took the money and became rich while defaulting?
Or all of them?
The skeletons are coming tumbling out just now because RBI
has woken up to insist that banks prepare proper accounts. But what was
RBI doing these many years when it knowingly allowed banks to present
fictional accounts quarter after quarter? We suspected the truth because
every time a new chief executive took charge, loan write-offs would
suddenly mount for the preceding quarter. Also, the market knew the
truth–or government banks would not have been quoting well below their
book value all this time. Indeed 19 of 24 listed government banks stocks
now quote at less than half of book value, some at a discount of 75 per
cent. Clearly, investors still think these banks’ books are akin to
fiction.
What about the government, which has been appointing all the
senior people in banks for decades? It is no secret that many chief
executives were buying their positions. One presumes the money was paid
on their behalf by businessmen—who, you can bet, were favoured later
with loans that would not bear scrutiny. Also, when the new government
declared that there would be no more phone calls from the government to
banks, the implications about past practice were clear. As it happens,
the phone calls have not stopped.
As for bank unions, who (if you are old enough to have been
there in 1969) organised slogan-shouting outside every bank branch, in
support of nationalization, took rallies to Indira Gandhi’s house, and
then created an environment in which customers became bank captives who
were subjected to the worst possible service standards, and who also
(you can bet) knew every time a wrong loan was given because these
things are never really secret in an organization, what is their
accountability? Why weren’t they whistle-blowers?
A third option would be to ask banks to go and raise money
from the market; but many banks command stock market valuations that are
less than what they are writing off in a quarter, so that is no
solution. Finally, the RBI governor asks for surgery—but ownership
change is beyond his brief, and no one in the government wants to go
down that road. Since there is no fifth option, we will go back to the
one that is easiest to do: take more of the taxpayer’s money and give it
to the banks, while businessmen become NRIs (you can guess what that
means). So should you be angry or not?
Source: BS
