The recent arrest of former ICICI Bank CEO Chanda Kochhar and her husband for alleged kickbacks for a loan to Videocon Industries six years ago has reignited the old narrative on the unease of India’s anti-corruption private bankers. Watchdogs, CBI and other agencies are stepping in to prosecute top bankers in private banks and institutions.
The gist of the argument against such intervention by the agency is that these are publicly listed board-run firms which, unlike some of their peers, do not approach the government seeking capital to fund their businesses. And that operating in the shadow of ghosts isn’t the best way to grow the business at a time when their balance sheet is looking cleaner than it was four years ago and with a rebound in growth. He can hardly be sure. A special Mint newsbreak this week said that adverse comments were made by the RBI regarding the rupee. During Kochhar’s tenure as CEO of the bank, ICICI again sanctioned a loan of 335 crores to a local firm.
It is surprising that many in the financial sector still seem ambivalent about the jurisdictional limits of anti-corruption agencies, believing that their area extends only to government officials and bankers in state-owned lenders.
India’s top court made it clear in 2016 that the top management of private banks – the chairmen and directors – were public servants and could be prosecuted on corruption charges. The Supreme Court then said in a judgment, “The discharge of duties in which the interest of the State, the public or the community at large, is brought under the purview of the expression – public duty.” That was in the case of the failed Global Trust Bank which was later merged with the Oriental Bank of Commerce. That bank, like some other private banks, had a board full of eminent professionals. It is an extension of the definition of public servant or the court’s interpretation that led the CBI to prosecute the promoters of Dewan Housing and Finance Ltd (DHFL), noting that the company accepted public deposits and disbursed loans, it was found The firm had diverted funds and fudged its accounts.
In many foreign markets, there is no such confusion with criteria for some state-owned banks and anti-corruption agencies, whether complex fraud or corruption is involved. While limited intervention by agencies may be the right approach to protect the integrity of the markets, it has again undermined the success in prosecuting and bringing criminals to book in a number of cases featuring high-profile borrowers’ dealings with public sector bankers. exposes from Ever wondered why Kochhar and the borrower who allegedly paid a kickback in exchange for business for her husband’s firms are under arrest, but Vijay Mallya, Nirav Modi, Mehul Choksi and other defaulters of PSU lenders Can the country survive?
This is related to the fact that Indian banking regulation is not ownership-neutral. This means that the RBI can go against the top deck of a private bank, supersede the board of a private bank and even liquidate it. It is not just the head of India’s central bank but international agencies that have flagged this weakness – the limited legal authority that the RBI has to oversee such banks apart from holding the boards of state-owned banks accountable And there are limits to regulation. As has been argued in the past, it is far easier to reform private banks as the experience of the early 2000s and later shows. There is also the discipline of the market mechanism for these banks, which unlike their state-run counterparts, raise funds from the markets and thus need to be more careful.
Successive governors of the RBI over the past two decades expressed their dismay over this and its impact on the national credit culture. And they are all in unanimity on how to address it – which is by ensuring that the government divests itself of the banks it owns. As former governor, Urjit Patel put it well in an impassioned public speech during his tenure, cleaning the credit culture of the country and NPAs being seen as the churning rod in Mandara Parvat or Amrit Manthan or Samudra Manthan needed. Modern Indian Economy. That churning seems far away. This includes distancing itself from public sector banks by reducing government ownership, which the finance minister has pledged to Parliament, and passing the powers of regulation over these banks to the regulator, the RBI. The national political consensus on reducing ownership may be weak, but that should not be an excuse to prevent the government from giving up its regulatory powers in favor of the RBI.
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