Satyam scandal whiffs of a bank scam

If there is one watchdog that is still moving sluggishly on the Satyam scandal, it is the Reserve Bank of India (RBI). It has asked banks to check whether they have major exposures to Satyam and the Raju family company Maytas (SBI obviously has). But it’s missing the main scam. The real scam is about money that wasn’t in the bank, and the RBI cannot  pretend this is not its problem.

Make no mistake about it: somewhere, at  the root of any scam, you will find a bank scam. Where money is involved, banks have  to be involved.

In 1992, they called Harshad Mehta’s massive swindle a securities scam  just because it involved government securities; it was actually a bank scam. Bankers, faced with a sharp depreciation in their bond  portfolio in a regime of rising interest rates, were feverishly seeking to show profits  somewhere.

That was also the time when the government was asking banks to become more transparent on their dud loans — and the  pressure to perform was getting to them. Mehta helped them show profits — and helped  himself to crores in the process.

In the Harshad Mehta scam, bankers were duped, no doubt, but they were also doing the duping. Mehta and other scamsters were running the securities departments of several banks — Standard Chartered, State Bank of India, Canara Bank — as though they belonged there.

Citibank was also upto its own tricks, for which it was duly penalised later. It stayed arrogant till the bitter end, cocking a snook at the babus who ran the central bank.

The Ketan Parekh scam was also called a stock market scam. But at the centre of it all were banks like Madhepura and Bank of India, even if they claimed to be victims. The IPO caper — where the same persons made multiple applications using multiple demat accounts with the same banks to increase their chances of an allotment in underpriced new equity issues — was also a bank scam.

In the end, Sebi rapped the banks on the knuckles. HDFC Bank, ICICI Bank, Citibank and Standard Chartered all got fined by the Reserve Bank for failing to follow know-your-customer (KYC) norms while opening demat accounts.

Note the recurrence of Citi and Stanchart again after the Harshad Mehta scam.
The smartest banks often think they are too smart to be caught. But they do get caught
sooner or later.

In the Satyam scandal, too, if you look hard enough, you will find banks involved. Promoter Ramalinga Raju has gone on record to confess that he was showing cash and bank deposits that were non-existent.

So how can banks —  or at least bankers — not be involved? Is it possible for a company to show its auditors that money exists in bank accounts without bankers giving them at least a fig-leaf certificate?

If the certificates were genuine, my charge that bankers were involved stands proven. If they were forged, banks should find out how their names were misused. If it was neither, banks should worry about why, when public claims are made by listed companies about deposits, no alarm bells start ringing at bank headquarters or branches.

These were not small depositor accounts. Satyam was one of India’s largest foreign
exchange earners, with crores coming in every week. But none of its bankers — Citi, HSBC, BNP Paribas, Bank of Baroda, HDFC Bank and ICICI Bank — knew anything about it?

In India, banks have even less reason to pretend innocence for they often lend in consortia. They can obtain detailed balance-sheets from borrowers or customers. Where shareholders get quarterly statements, major lenders can demand monthly cash flow statements and  detailed business plans.

Since the same banks are often lenders to several clients in the same industry, they should also have had a ringside view of how the sector was faring. If Satyam was claiming 3 per cent margins when the rest of the industry was milking profits at the rate of 30 per cent bankers should have known something was amiss. Did they not check whether their client was doing anything  funny with their accounts?

From all this it should be obvious to everyone why the Reserve Bank’s supervisory arm should be in overdrive now. Sebi moved so quickly that it scared the daylights out of the politicians who felt threatened by the Satyam-Maytas fallout. It is high time the RBI seriously probed the scandal in its own backyard. If it is already quietly doing its job, well and good.

As things stand, the public is only just beginning to regain its faith in private sector banks after the initial worries about the sub-prime impact. It would be folly for the RBI to let mistrust build for lack of foresight. It’s time to show the world it is doing something.