Santosh Kumar Das
Recent developments in the banking sector with respect to reporting of Non-Performing Assets (NPAs), and allegations of scam and impropriety raise serious concerns about the efficacy of the existing system. The sum of all these events points to insufficient transparency, which is systemic. It also suggests that there is adequate space for collusion and nepotism within the system.
The lack of transparency in banking operations reflects the embedded governance deficit within the bank’s operational structure. This deficit can be seen across banks, irrespective of ownership.
Till recently, the predominant perception was that only Public Sector Banks (PSBs) tended to be less transparent when it came to banking operations. However, with the recent revelation of impropriety in established private banks it appears the banking sector as a whole has tended away from stated norms or guidelines when it comes to transparency. This has been happening often despite Reserve Bank of India’s (RBI’s) continuous advisories to banks insisting on reporting, disclosure and banking operation, according to stated guidelines.
To begin with, all high-value loans with a brief about the project and the appraisal comments or reviews of the loan officer or credit appraisal committee can form a database
Greater transparency is essential for a robust banking sector as lack of it can potentially limit the effectiveness of regulation and can contribute to regulatory failures. The RBI as regulator has been insisting on its inability to take disciplinary action against PSBs and its executives, except for IDBI Bank as it is not empowered by the law to do so. Except for reminding banks about the need to follow RBI guidelines on banking operations, the regulator has effectively not done much in addressing the issue of inadequate transparency in the Indian banking system. Overwhelmingly, the intervention of the RBI is more advisory in nature. While RBI may have been correct on its stand from a legal point of view, ideally, the bank should have been more innovative and proactive in dealing with lack of transparency directly through its supervisory powers and by persuading the government to undertake necessary reforms to overcome this problem.
The government as the owner of PSBs has also not done enough to address this deficiency. Rather, it chose to pass on the responsibility to the RBI. While all these three agencies (banks, RBI and the government) seem to be slow on putting up a strategy with regard to bringing about transparency into the system, one key aspect that can potentially enhance transparency in the system is by creating a systematic loan database.
To begin with, all high-value loans with a brief about the project and the appraisal comments or reviews of the loan officer or credit appraisal committee can form a database. It will not only strengthen the monitoring and accountability of banks or its Credit Appraisal Committee, but would also create space for social monitoring of these high value loans.
Both the lender and the creditor will feel accountable to each other and to the public at large. This process would also provide a space for the general public to be party to the process. General public, being the depositors, should have a role in the process as it is their money at stake. Therefore, it calls for their active participation in this form if it can make the two parties (lenders and borrowers) more accountable.
The writer is Assistant Professor, Institute for Studies in Industrial Development, New Delhi.
