PMC account holders woke up recently to find that their life savings had vanished or not accessible because the RBI had issued a circular that permitted withdrawal of only Rs 1000 every six months. Just imagine of the depositors. Our finance Professor at the Asian Institute of Management used to say, the surest way to get people to part with money is appeal to their greed. In the PMC bank case and for most cooperative banks the lure is the marginally higher rate of interest on bank deposits. The ordinary folk never realise, higher rate is higher risk.
A bank is normally a safe place to keep money, actually this culture of saving in fixed deposits is something Indian in nature. Abroad they either pay you a very low rate or actually charge you to keep your money. So there you have to invest wisely if you have excess cash. With robust social security plan, people abroad tend to spend rather than save. In India, given the fact that one has to spend for himself and his family, a lot of emphasis is on saving for a rainy day post retirement, or a child’s marriage etc. Since equity or debt funds are not generally preferred by risk averse individuals, bank FD’s are considered safe. This itself is being questioned now, one with falling interest rates and a good chance of not getting your money when you want it given the scams tumbling out of banks in recent times.
Why do these scams happen? The simple reason these scams happen despite all the checks and balances is the fact that most of the cooperative banks are run by politicians and the money collected from common people is doled out to flunkeys of the politicians. Please be assured that this is not an endorsement of private or public banks as safe. The other reason is oversight, these banks come under the registrar of societies and the RBI. Meaning neither is actually watching, it is a clear case of the other person will do the job and finally none are doing it. Given this combination of no oversight and rogue leadership, we have a recipe for disaster and PMC is another example. Fortunately, the depositor is seeing some relief, the amount has been raised Rs 40000 in six months. The only reason this has happened is because the bank is headquartered in Maharashtra and they are going to the polls this week. Everyone is afraid of a disgruntled voter it seems. Yet, nothing has changed for Mapusa and Margao cooperative depositors, the limit remains Rs 1000. Why, is RBI not independent enough? Does the politics of the day effect RBI’s decision making? Is that the reason RBI Governors resigned midterm and we have a historian running the bank now?
They have attached properties and assets purchased with the money borrowed illegally. The law has to change, these attached properties will languish for years, except the land all the yacht’s, car’s, business jet’s etc will rot and when finally auctioned will be worth nothing. The law must be proactive, immediately allow auction and transfer the proceeds to the bank to reduce exposure. The other reason is a slow trial, the criminals will soon be out on bail and it will be years before any trial is completed so they can safely enjoy their spoils till then. I recall an incident, a classmate was summoned by the Malaysian Government in relation to a bank fraud. He returned 10 days later. Apparently a loan he had sanctioned had gone bad, the Chairman blamed him as he was the dealing hand. Fortunately for him he had made a file note to the effect that he is approving because Chairman has telephonically instructed him to do so. He returned and the Chairman was in jail. The important aspect is speed. If there is no possibility of jail quickly for these criminals, banks will be cheated every day.
The fact that there were elections around the corner we saw some quick action and arrests. Why was the same speed and action not seen when Mapusa and Margao cooperative banks tanked? Why no arrests of those who had brought about this situation for innocent bank depositors? The reason is that the fraudsters have political patronage and the depositors have none. The ball will be bounced between the RBI and Registrar of Cooperative societies, and in the end, only the depositors will suffer.
The bane of the banking system has been On Time Settlements (OTS). A borrower cannot repay for whatever reason, the collateral is usually suspect and cannot meet the outstanding obligation, the bank after a while makes an offer of PTS, where a pittance is paid and the issue closed. This means that honest borrowers who have been paying their installment regularly will feel cheated. Have you ever heard of a bank rewarding a quality borrower with a discount on his interest? No yet if the same borrower with the right connections defaults he stand a better chance of getting away paying less than the principal. In Goa, EDC has a long history of offering OTS and if one studies the list of the beneficiaries, it will be very clear who has benefited. On the other hand EDC has auctioned and recovered every penny in other cases.
At the end of the day unless, criminal action is taken against borrowers and bankers who collude to cheat the system with dodgy or no security and jugglery to keep loans from becoming NPA, the bank depositors will continue to face issues with withdrawing their hard earned money.
(The author prefers to write rather than chat in a balcao)
