Never miss a story

Get subscribed to our newsletter


×
Yes, there is no need to trigger panic but there is an immediate need to revamp the audit process carried out by RBI and internal auditors of banks. Pixabay

The fraud at Punjab and Maharashtra Co-operative (PMC) Bank shows that there is a rot in the system and not the bank. If unchecked, it can cause irreparable damage to the system. The complicity of bank officials with the Wadhawan family and its companies shows that there is a systemic flaw in the credit system. The extent of it may vary from one bank to another, but its existence is now undeniable.

Addressing a press conference after the Monetary Policy Committee review, Reserve Bank of Indai (RBI) governor Shaktikanta Das said that the PMC incident was an isolated one and there was no need to panic. Yes, there is no need to trigger panic but there is an immediate need to revamp the audit process carried out by RBI and internal auditors of banks. These audits failed to detect multiple accounts, over 20,000 accounts with the same address and ownership. This shows a systemic failure. Auditors need to use technology and simple programming languages like Python to sort through large databases to identify risks, especially concentric risks. It also shows that core banking solutions (CBS) a software platform mandated by RBI is prone to manipulations.


Finance Minister Nirmala Sitharaman seems to be cognizant of this challenge as she has asked public sector banks to appoint risk assessment officers at higher salaries. Cooperative banks also need risk assessment audit, as they are incapable of hiring such talent. RBI has to appoint these risk assessment auditors so that the extent of the problem in cooperative banks can be gauged and addressed.

There is a culture of hiding risks associated with a borrower at several points in the process of credit approval and disbursement. This has become part of the credit system. If a borrower cannot pay interest on loans, they do not disclose his situation and position as it shows the branch, the branch manager and credit team in a bad light. The managers see it as a personal failure. The bank also takes strict action against staff responsible for approving such loan.


Addressing a press conference after the Monetary Policy Committee review, Reserve Bank of Indai (RBI) governor Shaktikanta Das said that the PMC incident was an isolated one and there was no need to panic. Pixabay

The system treats default as a failure of the employee more than the borrower. The employee’s failure in judging the capability of the borrower is an individuals failure not because of economic cycles. Therefore, to prevent a borrower from failing, bank employees go to extreme lengths. Renewing loans, giving it to associated companies, ensuring that the interest payments are funded, and even committing fraud with the system. They try to hide it as long as they can, praying and hoping that the borrower will recover and repay.

This is the behaviour of the credit department in all banks. This is corroding the banking system as it’s endemic, barring a few private banks. The system does not know the exact risk it is carrying as nobody wants to acknowledge the borrower’s position till it blows up in the media. There is a conspiracy of silence among bank managers as every disclosure has a ripple effect across branches and banks.

The system needs correction to revamp the credit system, both process reform and behaviour change is required. The behaviour nudge is important versus any aggressive action as the latter will freeze the credit flow in the system already suffering from a slowdown. The asymmetric relationship between the bank manager and the borrower needs correction.

There is too much power with branch managers. Some banks have shifted the process of sanction to a central committee for loans beyond a size. But routing every single loan through a central committee slows down the process of sanction and disbursement. Hence, technology, data and artificial intelligence needs to be used to create solutions for approval and disbursement.

Also Read- More than 1 Million People Participate in Mass Rally against Chilean Government’s Austerity Policies

Decisions need automation in core banking solutions and manual interventions need to be reduced. The process of loan approval begins at the branch level. Due diligence needs to be outsourced. The paperwork, physical verification of assets, valuation of assets, determination of the creditworthiness of the business and individual to pay — these are data collection steps and here biases and corruption affect the outcome. There needs to be competition among branches to do it in the most exhaustive manner. We should see successful completion of this process as an accomplishment whether or not it grants the loan. This is the only way to bring rigour in this process.

The different processes in the system – evaluation, determination of interest rate to be charged and credit rating also need a revamp. There is graft, corruption and malfeasance. Branch managers lobby credit rating agencies for a better credit rating to justify their own evaluation report and offer a cheaper loan to the borrower. In a consortium, bankers blindly followed the evaluation of the largest lender which, if it’s State Bank of India (SBI), the report is copied and pasted by all the other banks. In terms of evaluation, SBI, because of its size, has a better evaluation system than most private sector banks. And if it wants, it can pull data on the past performance of cash flows of the promoters.

If SBI is not involved, the credit evaluation report is poor and prepared after the decision to lend or not is already made. Borrowers can influence lending in both public and private sector banks. Sometimes, to meet targets, branch managers behave like entrepreneurs. All checks and balances in the system are up for subversion if the manager has decided to lend. In the last few years, bankers have become wary of taking decisions that involve risk and do not want to lend either. The pile-up of NPAs and recovery has become the only target for most PSBs. Bankers are in a hurry to send a borrower to the insolvency board. They do not want to restructure for fear of being questioned. The pendulum has swung in the other direction. In a nutshell, the system is in a jam. Therefore, a revamp needs to be done in stages. The objective should not be to punish the bank employees but to change the overall credit culture. (IANS)


Popular

IANS

The aim of the book is to teach children that families can exist in different forms, and show them how to accept the diversity in family backgrounds.

By Siddhi Jain

Delhi-based author Pritisha Borthakur is set to release her new book, 'Puhor and Niyor's Mural of Family Stories'. The 1,404-word children's book was put together to address a new kind of societal debacle in the family system. The author says the aim is to teach children that families can exist in different forms, and show them how to accept the diversity in family backgrounds.

The author who named the book after her twin sons -- Puhor and Niyor -- is a parent who has seen and heard the tales of ridicule and discrimination suffered by many in India and beyond. She says the book is an artistic illustration for kids that details how different families can live and coexist. Whether it's children with two dads or two moms, children with a single dad or single mom, and even multiracial family units, Borthakur's book teaches love, understanding, and compassion towards unconventional families.

Beyond race, gender, color, and ethnicity which have formed the bases for discrimination since the beginning of time, this book aims to bring to light a largely ignored issue. For so long, single parents have been treated like a taboo without any attempt to understand their situations; no one really cares how or why one's marriage ended but just wants to treat single parents as villains simply for choosing happiness and loving their children.

Homosexual parents, a relatively new family system, is another form that has suffered hate and discrimination for many years. Pritisha emphasizes the need to understand that diversity in people and family is what makes the world beautiful and colourful. 'Puhor and Niyor's Mural of Family Stories' is a firm but compassionate statement against all forms of discrimination on the bases of sexual identity, gender, race, and even differences in background

four children standing on dirt during daytime 'Puhor and Niyor's Mural of Family Stories' is a firm but compassionate statement against all forms of discrimination on the bases of sexual identity, gender, race and even differences in background. | Photo by Ben Wicks on Unsplash


Keep Reading Show less
Photo by Lina Trochez on Unsplash

Clean and maintained hands boost confidence in daily life activities.

If you feel that clean and well-groomed hands are just an essential prerequisite for women, you might like to think twice. Men should equally pay attention to their hands because our hand houses 1,500 bacteria living on each square centimeter of its skin. You can easily assume what havoc it can create in our body because in India we have the culture of eating with our hands and spaces beneath nails can become breeding heaven for germs. Moreover, clean and maintained hands boost confidence in their daily life activities. Therefore, it's important to keep your hands clean irrespective of your gender by washing or sanitizing at regular intervals. And, to keep them groomed, you don't have to visit a salon.

Rajesh U Pandya, Managing Director, KAI India, gives easy and completely doable tips to follow at home:

* Refrain from harsh soaps: You should be mindful of the soap you are using to wash your hands. Your soap can have a moisturizing element in it like aloe vera or shea butter. Ensure that you're washing your hands with normal water as hot water can make your hand's skin dry and scaly.

Soap bars organic You should be mindful of the soap you are using to wash your hands. | Photo by Aurélia Dubois on Unsplash

Keep Reading Show less
Photo by Dmitry Demidko on Unsplash

Bitcoin has become an essential crypto asset in modern portfolios and investment funds.

Bitcoin has become an essential crypto asset in modern portfolios and investment funds. The confidence generated in this cryptocurrency will depend a lot on the diversification that companies make in their balance sheets in Bitcoin and the increase of institutional investors that allocate a percentage of their funds in this crypto. American fund manager Cathie Wood makes some interesting predictions, both in the rise that the Bitcoin price will experience in the next 5 years, suggesting these institutional investors allocate 5% of their funds; this will help leverage the Bitcoin market.

Bitcoin will grow by a tenfold

Keep reading... Show less