PNB and Bank of Baroda scams: How to end loot of taxpayers' money

The mystery behind the depressing regularity with which the taxpayer’s money is being looted from PSU banks is deepening by the day. However, the question that needs to be asked is, what are the steps taken/required to stop this plunder? 

As a nation, we have become insular to the Nirav Modis and Vijay Mallyas, not to mention the famous promises of bringing back black money stashed abroad. On the contrary, we have been witnessing an ever-increasing capital flight.

While this loot is being repeated almost on a daily basis, only a few of them get caught. Those few who were caught naturally consider themselves singularly unlucky to have been exposed. Even so, there’s no fear of retribution since our archaic legal system cannot withstand the onslaught from criminals who have fortified themselves with shiploads of stolen cash.  

To add to the common man's trauma is the blame game playing out. While the senior management of banks point fingers at the juniors (sometimes even leading to the latter's arrest), internal auditors and statutory bodies get hauled up. These auditors, in turn, take to the media to claim innocence, normally saying that objections were duly highlighted to the senior management but were not acted upon. The RBI is censured for not installing a vigilant enough oversight system. Lastly, the law enforcement agencies are blamed for letting the white-collar criminals flee.

If it wasn’t for the seriousness of the matter, this could easily be classified as theatre of the absurd. All of this is deflecting the real issue. This is akin to finding fault with electrification or plumbing in a crumbling multi-storey building when the real issue is poor quality cement, weak foundation and an accident-prone design. Some bemoan the fact that the culprits always go scot-free in absence of strong deterrent in the form of exemplary punishment. If there is exemplary punishment, thieves wouldn’t steal. But, truth be told, that's nothing but wishful thinking.

The real issue is that banks are owned and, therefore in one form or another, run by the government. Financial institutions are interconnected worldwide and must strictly conform to international banking regulations. In a rapidly evolving globalised market, regulations are updated and refined, at the very least, on an annual basis and therefore financial institutions are expected to possess requisite professional talent for meticulous compliance. Can the government of any nation do justice to the above?

It is not any government’s core competence to operate in specialised industries such as banking, airlines, hotels etc. Can we contemplate the government producing a movie? All specialised professions and institutions are best left in private hands, thereby ensuring that any inefficiency, loot, plunder etc, results in direct pain to the owners. Once this fundamental metric is correctly set, all applicable tenets of professional and prudent management along with principles of good governance will automatically come into force. Furthermore, the systems of checks and balances - industry regulators, auditors as well as law enforcement would surely prove superbly effective as envisaged.

I for one cannot support the usual prescription of "privatisation". State-owned banks do perform a yeoman's service to the nation - for instance, development banking, rural penetration and so on. If the government could, however, muster the political will to privatise a few of the state-owned banks, we would indeed convert a disastrous defeat into a thumping win.

The government can (and should) continue as minority shareholders in these privatised banks. Consequently, instead of having to shoulder gigantic pecuniary losses and suffering humiliating loss of face, the government would instead earn accolades and dividends. It will be a win-win for all.

(The author of the piece is founder and MD of mymoneymantra.com)

Also read: Why rob a bank when you can just get a loan and never repay?