Some bank scams in recent times should be eye-openers for us. They show how rich and resourceful persons have been carrying out a brutal loot of the common man’s money. This issue is as great or even greater than the ones related to border conflicts, terrorist infiltration, Dalit destitution, farmer suicides, climate change and Maoist attacks.

Bewildered, one begins to wonder how a person who has taken thousands of crore rupees of loans from banks does not worry about paying it back. Rather, he lives a life of luxury.

He flaunts his wealth unashamedly before all. In contrast, a farmer or a middle-class professional is forced into ending his life when he is unable to clear off a petty loan.

Originally, public-sector banks were envisioned for the betterment of life of the common people. But today, the situation is the exact opposite. Through bogus accounts and false documents, some crafty people have prospered vastly but the intended beneficiaries have been overlooked and subjected to all sorts of indignities.

The trend had been in vogue from even before Nirav Modi, Vijay Mallya, Rotomac and some others of that ilk. The more shocking aspect is that this is going to continue in the absence of control by the Reserve Bank and various vigilance agencies as well as shoddy probes, lack of fear of law and long delayed trials in courts.

It may be a system and culture of loot. Some flee the country, God knows how, while some are in the country. And a large number are yet to be exposed. What in the system allows this? And what is it in our culture that allows a bad system to thrive? Unfortunately, that has never been a serious concern. Governments change, but corruption lives on.

Once there is almost universal acceptance of corruption in public life, crooks will thrive. Had there been strong examples of punishment to the corrupt, they would not have dared think of making the system a rogue. Our laws are already strong, but our corrupt culture and its easy acceptance make them weak.

Corruption in India is cultural. Indians tolerate corrupt individuals, rather than correct them. Even religion is transactional in India. The wealthy donate huge amounts of gold and diamonds to temples but never think it right to deposit large sums into accounts turned into NPAs.

In June 2009, ***The Hindu*** published a report of a Karnataka minister who gifted a crown of gold and diamonds worth Rs 45 crore to a temple. When Westerners came to India they built schools, when Indians went there they built temples. Morally, there is almost no stigma attached to the corrupt.

There are enough examples of how rich business houses take advantage of the banking system. First, they win over decision-makers with lavish gifts.

Then, they create wrong paper work in the right way to ensure the bank see nothing that is illegal or ought to be questioned. They have available a store house of experts ~ Chartered Accountants, financial and management consultants to guide them in the right way to do wrong things.

In the Nirav Modi case, the bank is still finding it difficult to spot how illegalities were committed. Such a big fraud happened despite the supervision of top management of the bank, concurrent audit, statutory audit, internal audit and RBI audit. Everyone knows everything, but no one knows how it happened. Whom are we fooling? The need is to catch the real fish.

Financial frauds have been growing in India. The central bank’s June 2017 Financial Stability report says losses from financial sector frauds rose 72 per cent in five years. Almost every big debt is turning into a bad debt.

What is the inside story? Added to that the nation is busy in the game of blaming persons. No one seems ready to accept responsibility. How long can it go on? And how many CBI personnel will be employed to trace the roots of the scam?

The new law just passed after the PNB scam, allowing attachment of properties of fraudsters may be a welcome measure, but is surely not enough.

Many borrowers inflate value of their pledged assets in connivance with valuers. Before committing default, corrupt business houses siphon off large sums of money through shell companies. Maybe the time has come to be innovative in fighting corruption in banks.

In the late 1990s, development of nation’s infrastructure opened up and banks were encouraged to give infra-loans. Many cases of fraud came to light because bankers were carried away by the trend and gave loans without thorough scrutiny.

In 1998-99 banks’ exposure to infra loans was an insignificant Rs 2,000 crore but as of 2017-18, the exposure was between Rs 16 and 18 lakh crore. Our public-sector banks did not have strong technical teams to assess such loans.

Banks are burdened with NPAs adding up to almost Rs 20 lakh crore. For a nation that dreams of a new future with the power of its economy and of its human resources, this nightmare has to end before we see any light. The Prime Minister is envisioning a new India with a distinction and a difference.

Can India really make it with a broken banking system? It’s not just about public-sector banks; the recent report of alleged transactional deals between the husband of a top private sector bank CEO known for her consistency in success and a business man who could get a Rs 3,000 crore loan is a pointer to what else could be hidden in records or in the deals of many private sector banks. What will happen to these private banks? One thing is clear, this case should shut the mouths of those who argue in favour of privatisation of public sector banks.

A little thinking makes it clear how the treacherously gained money is siphoned off. It is done through unprincipled chartered accountants and experts who give tangible form to their client’s ambitions. There is a serious dearth of real financial experts in top positions in some of our banks.

There is a financial mafia that is in collusion with venal political leaders and bureaucrats. Above all these, there is ultracrepidarianism in our banks too. Heavy bank loans to gemstone and diamond businesses continue on the strength of stock statements, countersigned by charted accountants, whereas actual stock is low.

Bank officials have no time or expertise to periodically value the actual stock of precious stone and gems. High- value jewellery, gems and diamonds can only be assessed by professional evaluators. The case of Gitanjali Gems is a valid example.

If the sinews of the banking system break, the country is bound to sink. Thus, remedial measures are urgently required. These must include: i) Income-Tax scrutiny of all assessees who have availed loans of more than Rs 2,000 crore; ii) Integrated investigation of defaults by CBI, ED and banks; iii) Forensic audit of all accounts, either NPA or non-NPA, for loans above Rs 1000 crore once in three years at the cost of the borrower, and iv) Anyone who has taken loan above Rs 1000 crore but has not paid any income tax for three years ought to be put on alert by banks as well as investigating agencies.

The government must also be on alert that there is already a big scam of thousands of crore rupees in existence. These scams are in all the banks for L/C issued against fake documents for procuring material on regular basis.

This is called a ‘Dabba Entry’. Then, there is huge discounting of fake export and domestic invoices. This is all in the knowledge of bank managers and top management of all banks, but our investigative agencies and central bank have no clue.Now there is an opportunity for the Central Vigilance Commissioner to set an example to stop these scams.

He should get forensic and statutory audit done of top 10 large branches of various banks with reference to L/C against fake bills, discounting of foreign and domestic bills, stock statement submitted to banks and actual stocks and re-valuation of various properties pledged by large borrowers and all costly machinery purchased by borrowers.

Often such purchases are over-invoiced and money so siphoned off is used for acquiring shares through offshore route.Not a single scam can take place without the involvement of auditors. There is no transparent system in place for appointment of auditors.

Once they are empanelled with CAG, then fixers in the system play key roles for their appointment as statutory or concurrent auditors in different banks.

These auditors must be tried as per law and should be punished with heavy penalty and criminal proceedings in case they are found to have wilfully overlooked frauds by bankers/borrowers while conducting audits of branches.

At present there is darkness all around. If the problem is not resolved, the failing banks will collapse, and people might suffer in innumerable ways. All talk and claims about prosperity, advancement and high GDP growth lose meaning when the banks reach a state of insolvency. The thought alone should make us shudder.

The writer is Chairman, Paras Foundation and can be reached at [email protected]