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#dnaEdit: Make it straight

Friday, 22 August 2014 - 5:05am IST Updated: Thursday, 21 August 2014 - 8:48pm IST | Agency: dna

Dena Bank, Oriental Bank of Commerce scams reported by dna indicate public sector banks are vulnerable to subversion because of convoluted systems

Over the last few years, the amounts involved in embezzlements have turned out to be in thousands of crores, and sometimes even more. The seriousness of the fraud seems to depend on the large, astronomical figures of the defrauded amount. So, the Rs436 crore scam that has been detected in the Mumbai branches of Dena Bank and the Oriental Commerce (OBC), reported first by dna on Wednesday, would appear to be a petty crime in comparison to the mega-scandals which had happened during the UPA II tenure. It would, however, be a mark of cynicism and despair if we refuse to count as scam something which involves only a few hundred crores as is the case in the present instance. The Dena Bank, OBC episodes show the fraudulent transactions that are effected at the level of mobilising fixed deposits. Crooks in and outside the system are always on the prowl to subvert rules. It becomes necessary to not just create oversight mechanisms, but also to make the process of mobilising deposits much more straightforward. 

The obvious loophole in the Dena Bank case was that the fixed deposits of seven companies were mobilised entirely through the middlemen, and receipts/certificates issued, and further loans were released with the non-existent FDs as the collateral. The OBC case is the curious one, where the entity in whose name the FD was created did not have an account and, therefore, the amount was channelled into a miscellaneous head. An interesting aspect of this case is that it is the finance ministry officials who smelled the rat. 

It has become a practice in public sector banks (PSBs), as well as private ones, to outsource the job of getting deposits and offering credit. But the status of these ‘agents’ who are supposed to be working on behalf of the bank remains ambiguous. They are not part of the bank’s staff, and they are not exactly ‘agents’ in the sense of an insurance agent, who hard sells a policy and earns the commission. The compulsion of the banks to fall back on the private armies, as it were, who will help meet the banks’ targets in getting deposits and giving out credit is understandable. But these persons have to be part of the official structure if they are to be held responsible. There is, of course, the complicity of the bank officials themselves in perpetrating the fraud. 

As a matter of fact, the PSBs are generally unable to increase their businesses because of their cumbersome, and even outdated, modes. Private banks are supposed to be more attractive because these are supposed to have made banking transactions customer-friendly. But is the convoluted systems in the PSBs that seem to lend themselves to greater subversion. 

The ministry has ordered forensic audit to nail the culprits. It will not be necessary to inveigh against the laxity in PSBs as part of the general argument against anything and everything in the public sector. Perhaps, there is scope for an argument favouring privatisation of some of the PSBs. A first step has been taken by allowing for the increase in retail shareholders to 25 per cent in all public sector units, and this includes the PSBs as well. The feeling that any government enterprise is a dark labyrinth and it is possible to get away with theft and fraud, is a temptation for crooks. If the systems are simplified, they will become so much more difficult to subvert.

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