Thursday, August 21, 2014

Corrupt Culture Flows From Top

Corruption: The rot starts at the top-Hindu Business Line 22nd August 2014 ( read my views below this news )

By KH Waze

Graft in Indian banks is finally an attitude problem. It cannot be addressed by CCTVs and sweeping orders

Ever since the Syndicate Bank chairman and managing director SK Jain was arrested by the CBI on August 2, there have been various reactions from bankers and the public, pressing for better governance, amidst fears that credit facilities from banks would be delayed.
It is feared that a crackdown would lead to a situation where bankers, fearing for their careers, would hesitate to sanction loans, impacting industrial activity.
Some banks have reportedly taken extreme steps like banning middlemen from entering their premises and disallowing their managements from dealing with them.
Further, it appears instructions have been given that all official meetings with the CMD, executive directors and general managers will be held in rooms fitted with CCTV cameras, with notices making clear that proceedings are subject to surveillance and will be displayed. Visitors would only be allowed to carry with them the papers, laptops and tablets required for the meetings or discussion; and these would have to be passed through an X-ray machine.
However, I feel all this will not lead to significant outcomes, because the plain fact of the matter is that corruption is a product of one’s mindset and culture.
Flouting the oath

In many government departments and public sector undertakings employees take an oath every year that they will not accept bribes; their offices display signs saying offering and accepting bribes is a crime. Yet, the malaise is so deep-rooted and widespread that it is accepted as a part of life. So, with due respect to the intentions behind putting in place gadgets and other devices, I believe they are not enough; the culture itself should improve.
Here, the executives at the helm invariably make a difference. Officers at the lower and middle levels keenly observe them. A positive message down the line percolates effectively and no effort of middlemen on the wrong side can subvert the positive impact. The question, therefore, is whether such positive messages are indeed transmitted in the Indian banking sector.
The initial display of sternness when a new person takes over is mainly to ensure there is little or no resistance, later making them conduits for bribes. A carrot and stick approach of awarding promotions or issuing transfer orders can be used to make subordinates pursue selfish ends. The new incumbent at the top, usually from another bank, generally criticises the entire system in the bank and makes officers submit to pressure from the top. Dishonest elements down the line could take advantage of the situation, which gives corruption a multiplier effect; eventually room is created for dishonest middlemen, and that is how the whole system is affected.
The RBI governor has rightly observed that “there are some good middlemen and some not so good middlemen. A good middleman acts as broker but if the point of a middleman is to pay bribes that is obviously not okay. It is part of the whole set of governance issues that we need to look at”.
Where to draw the line

To tackle the issue of corruption, the banking system needs to improve governance. The message that bribe-taking and giving will not be tolerated should explicitly percolate from the top, down the line. Training schools and colleges run by banks should educate officers and staff to keep away from malpractices. Seniors should welcome frank opinions and not get carried away by undue praise and flattery.
Facilitation should be entertained only from persons of sound financial knowledge, experience and integrity. Simultaneously, banks have to take a closer look at their policies and procedures and loopholes should be plugged.
The Finance Ministry and the RBI should take a fresh look at the loan approval committees of PSBs. An impression has been created that the committee approach means no personal responsibility. Hence, frank opinions are not expressed against un-bankable proposals. Remaining silent when principles of credit appraisal are compromised is, in a way, participating in malpractice. Besides, there should be more a critical annual review of the performance of top-level management.
Officers at all levels should learn to always act in the interest of the institution without fear of transfer or not being considered for promotion. Taking calculated risks is an integral part of banking, and therefore officials should not be afraid of bonafide actions in support of which they should keep records.
While the Syndicate Bank incident is an eye-opener, bankers should not get bogged down by it. The situation should be utilised to cleanse the system.
The writer is former general manager of a nationalised bank
My Views on Corruption in Banks is submitted below:

After exposure of FD scam in Oriental Bank of Commerce and Dena Bank and after knowing and understanding the stories of bribery led lending undertaken by CMD rank officer of Syndicate Bank or top ranked officials of PNB or SBI or United Bank or Indian bank or Corporation bank and after failing in stopping uptrnd in NPA volume in PS banks, Finance Minister Mr. Arun Jaitley says that bank officers at top post must undergo training in Risk Management before he is assigned the duty of top post.
It seems ridiculous to me that a person who is made CEO or General Manager of a bank is not well conversant with tools of risk management even after working in some bank or the other in various capacities for two to three decades. And if it is so how a Branch Manager who has experince of three to five years is given charge of big branch and delegated huge powers of loan sanctions. It is the branches which actually initiate all loan proposals and it is they who indulge in bribery in small loans and it is they who in fear of action act on big proposals desired and instructed by top officials , willingly or unwillingly. Ganga of corruption flows from top and promotion of bad officers starts from low level. If only corrupt officers are promoted , it is but natural only corrupt officers occupies top posts.

I have no doubt that all these top officials who are found to be corrupt and who are not yet detected and trapped know all normal tools to mitigate the risk but they willingly in greed of money ,status and promotion decide to sanction a loan proposal of a bad company without doing due diligence.

Otherwise it is proved that even appointment of officers for top post was never done on the basis of merit but on the basis of gift and bribe he or she used to manage for ministers and politicians and RBI officials who are responsible for selection of person for top post. And when a person gets award of top post by paying some amount in consideration thereof, he or she will promote same culture of bribery and flattery down the level.
As such there is no merit in saying whether one has undergone training of risk management or not. Rather corrupt officer who knows tools of risk management can manage bribe led lending more cleverly taking all steps to safeguard him or her , at least better than those who do not know Risk management mechanism .A well trained officer try to protect himself first and then his or her organisation. This is why officials become wealthy in short span of time and bank become weak and poor under pressure of bad assets created by such corrupt officials.

A person who is corrupt can suggest how to fabricate papers and documents so that none can blame him if the loan sanctioned by him goes bad in future.

To illustrate I may say that ,a person who knows tax laws and understand them well can only suggest the ways of tax evasion and can train a business man how to have black money and how to use black money, and that too taking hidden concurrence of Income Tax officials. It is trained persons who promote culture of bribery and flattery more than those who possess average knowledge on the topic.

Anther suggestion given by Finance Minister is to bifurcate the post of CMD in two parts , one as Chairman and another as Managing Director . Further MOF has proposed to increase the tenure of CEO from three to five years to inculcate professionalism in the person. It seems to be totally equall ridiculous and absurd, unwarranted, useless, totally Bakwas and unbelievable that an officer will become honest and professional as soon as his tenure is increased or his post is split into two or he or she is given training of risk management.

There are examples when a CMD has been given extension for two to three years in the same bank , but he is found to be the greatest manipulator , fraud master and generator of more and more bad debts. Reality of health of assets created by such clever CMD gets exposed only when he is replaced by some other CMD. We have witnessed such happenings in big banks like SBI, PNB, Corporation Bank, Indian Bank and almost all others. Even branch level evil works are detected only when a corrupt officer is followed by an honest officers , otherwise corruption is protected for decades.

As long as one is in post , he or she does not allow loan sanctioned by him to be declared as NPA. There are many tools in the Almirah of Branch Head or Regional Bosses by which even bad debts can be treated as Standard assets .

Harshad Mehta sued his clever brain to commit fraud not only in U Co bank but in several other banks too only because all became victim of gifts in cash or in kind Harshad Mehta used to offer to bank officials. Similarly middlemen like Pawan Bansal got success in managing not only CMD Mr. S K Jain but several top officials of several other banks. One can find hundreds of such officials in all banks who use to sanction loan only when his middleman propose the same.

I am of the opinion that FM or MOF has not yet understood the root cause why volume of bad assets is increasing in public sector banks only. IN case of loans given to Kingfisher, Winsome group, Deccan chronicles, or Bhusan Steel , it is not one or two CMD but a gang of twenty to thirty CMD agreed to lend money . When middlemen manages the bribe and gifts, it is not difficult for any CMD to sanction loan to any corporate or individual. After all greed for wealth is found in ninety nine percent of officers and employees in almost all offices and all department.

In case of Satyam Computers , none doubted the correctness of financials of the company as long as promoter himself did not tell the bitter truth. Chartered Accountants who are supposed to be master in accounting and whose signature is unavoidable on all balance sheets play vital role in all types of scam in banks as also in tax departments.

It is therefore necessary to start punishing top officials who are playing with public money and who are looting taxpayers' money and getting safe retirement. Only stern action against top officials can send sound and good message down the line. GOI will have to peep into record of past ten years at least to know the corrupt game and rampant corruption at top level. They will have to stop flattery and bribery in recruitment, promotion and posting . They will have to give powers to juniors so that they may deal with loan proposals boldly and without fear of repercussion and without fear of transfer to remote place or without fear of rejection in promotion.

Only action will help in creating good culture in public sector banks. Mere preaching of sermons like politicians of UPA government or setting up of new committees can do no change.

I know Mr. Jaitley Finance Minister is very honest and talented person too. Very son he will realise that it is not training which is needed for such corrupt officials , it is only deterrent action which can help in improving the culture and which can stop rampant corruption in middle level and low level offices and branches.

I submit news item which provoked me write views expressed above.
Govt taking steps to professionalise PSU bank management: FM Arun Jaitley-Financial Express
Concerned over instances of corruption in the PSU banks, Finance Minister Arun Jaitley today said that government is taking steps to professionalise the management and help them strengthen their risk management system.
"Professionalising the management of the banks, we have taken some decisions in this regard. We expect banks to have better risk management. The Department of Financial Services has been actively working in this regard" Jaitley said at a function organised by Indian Bank here.
Without specifying names of banks, the Finance Minister said "some recent incidences have been disturbing. I only hope that they are drop in the ocean. We have all learnt the lessons from such incidents, and there will be no repetition of them."
His statement assumes significance in the light of scams in the state-owned banks.
Earlier this month, Syndicate Bank Chairman and Managing Director (CMD) S K Jain was arrested for allegedly receiving a bribe of Rs 50 lakh to enhance credit limits of Bhushan Steel and Prakash Industries.
Besides, some officials of Oriental Bank of Commerce and Dena Bank were suspected of misappropriating funds worth Rs 436 crore from their fixed deposit customers.
The government has initiated a forensic audit in the alleged scam.
Finance Minister, however, expressed hope that an enhanced level of professionalism will further strengthen and improve credibility of the banking system.
"Credibility is of extreme importance as far as banking system is concerned. We must endeavour improved standards of credibility," he added.

Last but not th least
If bankers need training on risk management , then why not politicians and officials of regulating, auditing and inspecting agencies need training who use to auction these top posts and who use to provide umbrellas and shield when their corrupt children are trapped in CBI or media net. If leaders becomes honest , there is no possibility or remote chances of low level officers indulging in bribery or flattery. An honest top official never keep Yesman around him. It is only corrupt officers who use to keep team of 'Chamchas' around him who provide 24 hours shield to them.


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