Are banks really too big to fail? Wolves on bank street suggest otherwise 

I remember a popular advertisement from a public sector bank eons ago when I was still an impetuous irreverent school-going brat.

It simply said “You can bank on us”.

I was fascinated by the creative wordplay and thought that was smart marketing. Years later, by an uncanny coincidence, I became part of the financial universe tapestry, working with an established foreign bank that paid obscene bonuses and whose sales literature frequently reminded you that they were customer-obsessed.

Short of stalking you, they would follow you to oblivion to make you experience their service excellence. It was an exaggerated utopian fantasy, sold by cerebral copywriters from the ad agency and dreamy-eyed marketing professionals from the bank whose main brief was to meet the deposit targets set by the big bosses.

The customer was the everlasting emperor who deserved our perpetual servitude, that was the corporate mantra. And then suddenly the Harshad Mehta stock-market scam broke out, and the bank I worked for was exposed for its wilful abatement of securities transactions that enabled the Big Bull to swindle the entire banking system. We were accessories in crime, all for a quick buck and on the sly.

In a matter of weeks, if not days, the vacuous nature of our sales sophistry stood as exposed as sea-shells on the shore. The false veneer of reliability had been smashed into smithereens.

That’s why the Punjab and Maharashtra Co-operative Bank (PMC) scam that has stirred once again the hornet’s nest hardly surprised me. India’s financial architecture is frangible and is facing an existential crisis. We underestimate its precarious foundations and its current parlous circumstances at our own peril.

As the Indian economy has begun to decelerate to a near crawl (its GDP forecast for FY 2019-20 has been lowered by the World Bank to 6 per cent already ) with the lowest GDP at 5 per cent in April-June 2019 in the last six years, the contagious aftermath of bankruptcies have begun to escalate.

The catastrophic collapse of the giant ILFS, once the blue-eyed boy of the shadow banking world, should have been adequate warning that there would be several others on the same wobbly boat. That HDIL, the real estate company, hoodwinked PMC Bank using a smorgasbord of 21,000 shell accounts, is a manifestation of deliberate oversight by the regulatory authorities.

The revered Reserve Bank of India (RBI)now has a terrible stigma attached to it of being almost nonchalant to evident daylight robbery. It chose to blindfold itself. HDIL incredibly enough siphoned off almost 78 per cent of the loan portfolio of PMC Bank; the scale of the fraud is so rapacious, it is mind-boggling.

Incidentally, such a mammoth fraud cannot be effectuated without senior management involvement and political patronage that guarantees regulatory protection. Not surprisingly, one of the pivotal directors of the PMC Bank has undeniable linkages with the ruling Bharatiya Janata Party (BJP) as have several other directors.

It is a dreadful can of creepy worms that leaves the ordinary depositor highly susceptible to being taken for a ride. There are tragic stories of people in desperate need for money for a daughter’s marriage, a crisis in the family or a medical emergency being left high and dry as the RBI has put withdrawal restrictions apprehending a run on the bank’s cash balances.

RBI should have been doing the heavy-lifting as Dr Raghuram Rajan, former RBI Governor, was trying to do, but intriguingly his tenure ended with the government in visible discomfiture with his prudent prescriptions. It is as if the BJP-led NDA felt threatened by his attempt to rein in the crony capitalists.

Public ululations get momentary television space before they moved to an extensive coverage of plogging by celebrity politicians. And investigative journalism that brings to light well-engineered corporate malfeasance is virtually dead.

For instance, no one asks the Prime Ministers’ Office (PMO) as to why the biggest wilful defaulters list submitted to it by Dr Rajan way back in 2015 is not made public yet? Bank frauds have become a modus vivendi during the last five years according to RBI data, which when responding to an RTI query made the shocking revelation that they had gone up by 300 per cent compared to the previous term.

The ordinary depositor has never been more vulnerable than he is today; for long, many thought that cooperative/public sector banks were like a sovereign guarantee. That now appears like a chimera.

The axiomatic belief that “banks are too big to fail” is a false narrative. During the 2008 USA mortgage crisis, the gold standard of global finance collapsed, and that included Citibank, Morgan Stanley, AIG, Goldman Sachs, etc. If the average Indian is worried today, it is because his or her apprehensions are justified.

What is disconcerting is that we are witnessing what could yet be the tip of a gigantic iceberg. DHFL, India Bulls Finance, Yes Bank and several other NBFCs appear to have monumental stressed assets, and reportedly camouflaged NPAs. With the RBI seemingly comatose, the banks’ publicly disclosed numbers could be substantially massaged.

Remember that the much lionised banker Chanda Kochar circumvented elementary diligent banking norms right under the nose of the board of directors of ICICI. And the famous trinity of the heist mob comprising of Nirav Modi, Mehul Choksi and Jatin Mehta all flew First Class tickets to London because they were tipped off, alerted by the very dispensation that was supposed to arrest them. The rot runs deep, and it is deadly.

At the time of writing this piece, the heart-breaking news of the death of Sanjay Gulati, an ex-Jet Airways staffer whose hard-earned savings of Rs 90 lakh is still stuck in the PMC Bank was being reported.

He died of a heart attack and it can be assumed that the stress must have been enormous. Over 140 Indians died during Demonetisation too. But we “moved on” as a country with almost insouciant comfort.

But sometimes it is important to stay and demand justice. That time has come.