Reports reveal widespread irregularities and malpractices, including gross misuse of public funds by top management, highlighting the urgent need for banking reforms

Several private banks in India are indulging in massive irregularities and malpractices with some of these irregularities highlighted in the Inspection-Reports of these banks ever since the Supreme Court ordered the Reserve Bank of India (RBI) to make such Inspection-Reports of banks public under the RTI Act. But now even RBI is reluctant to disclose these Inspection Reports public under the RTI Act RBI should remove all confusion by complying original Supreme Court verdict in letter and spirit by making of Inspection Reports of all banks public on the RBI website. Moreover, it should be mandatory for all banks to put their respective Inspection Reports on their websites including all the previous ones.

Considering the vast participation of public money in private sector banks, all private sector banks must be under the purview of the RTI Act. Already all employees up to the highest post of CMD are public servants according to section 46A of the Banking Regulation Act. RBI had to impose restrictions on the withdrawal of money for some time on a prominent private sector bank. The former CMD of another prominent private sector Bank is under arrest for serious charges of misappropriation of public money in the Bank. Inspection Reports of private banks revealed under the RTI Act by the Reserve Bank of India (RBI) reveal gross misuse of public money by top management. Another private sector bank is renowned for a large number of Non-Performing Assets (NPAs). Heavy fluctuation in share prices of certain private sector banks tends to doubt regarding safety of public money in private sector banks. Deposit Insurance and Credit Guarantee Corporation (a subsidiary of RBI) has to pay a maximum rupees five lakhs from state funds to each depositor of the bank including those in the private sector that collapse due to massive irregularities, which is public funding to declare private sector banks as “public-authorities” under section 2(h) of RTI Act. An example is the closure of a private PMC Bank in Maharashtra which even caused the fatalities of several depositors.

Many banks to boost their business provide excessively secured loans more than the real market value of the mortgaged property even though rules allow only some portion of the assessed value of the property for loan purposes. This can and must be effectively checked by formulating a rule with retrospective effect whereby banks may be required to close the loan account in case the borrower surrenders vacant possession of the mortgaged property unconditionally. Strict action under section 46A of the Banking Regulation Act should be taken against officers sanctioning excessive loans higher than the recovered amount by the sale of a mortgaged property when the concerned bank is already in the advantage of having sufficient margin money. A study may be made if some ban can be imposed on giving loans on self-occupied residential properties because, in case of default, the family of the loan-taker is the sufferer for fault/default of the loan-taker.

It is quite usual that many private banks often get blank papers, loan kits and cheques signed by the borrower and his family members as guarantors to misuse as per their convenience in case of default of loans. Borrowers generally sign such blank documents without realising the consequences in a hurry to get loans. Erring banks  do not give consumer copies of the loan kit to the borrowers who are thus always practically financial slaves of such banks. The system should be that a copy of the duly filled loan kit and cheques may be compulsorily sent by Registered Post to the borrowers, guarantors and a specially set-up section of RBI within seven days of loan disbursal to ensure that banks may not be able to misuse any other paper earlier got signed blank in case of default. The same should be applicable for non-banking financial companies (NBFCs).

The rule should be that all bank accounts of Government offices, Public Sector Undertakings (PSUs) and state-run corporations (both central and state Governments) must be compulsorily only in public sector banks. Rather their employees should also have their salary accounts in any of the branches of the same public-sector bank for getting salaries through simple bank transfers. Government employees thereafter may shift funds to any bank of their choice. There were serious allegations of favouritism with a particular private bank for having salary accounts of employees of a Government department in Maharashtra because the wife of a heavyweight political ruler was a senior executive in that private bank. Maharashtra has otherwise also the unique facility of having the smallest public-sector bank having a widespread network of branches all over Maharashtra. Bank of Maharashtra was not merged with any larger public-sector bank only to retain its identity as a state-specific bank in Maharashtra state. Governments both central and state should be duty-bound to promote public sector banks. Using public-sector banks will increase deposits and profitability of public-sector banks and ensure the safety of public money.

RBI bonds issued by the Reserve Bank of India (RBI) should be issued only through public-sector banks and companies. Once there was a news item that China Central Bank had tried to raise its stake in HDFC Bank from 8 percent to 1.1 percent with China Central Bank already holding about 17.5 million shares in HDFC Bank. Even though the Indian Government subsequently tightened rules for increasing such stakes by neighbouring companies, the episode developed a feeling of uncertainty amongst investors in RBI bonds made through HDFC Bank. There should be provision of auto-renewal in RBI bonds at the interest rate prevailing at the time of maturity.

Frauds are reported through some bank employees misappropriating funds in such inoperative accounts where the amount is large. RBI should direct all banks to inform account holders about their existing balance and to approach banks either to make accounts operative or close these in a time-bound period after which all such balances may be transferred to Depositor-Educative-Awareness-Fund (DEAF). With the private sector dominating the banking sector, public money lying in inoperative accounts must not be retained by banks.

Frequent changes of account numbers by banks should be prevented by making it mandatory for all banks to allot 15-digit account numbers. Confusing and frequently changing account numbers result in the bouncing of electronic fund transfers. Rather such a 15-digit account number should be a unique one with banks being recognised by the first two digits of the account number. Such 15-digit account numbers should also be for Public-Provident-Fund (PPF) and Senior Citizens Savings Schemes (SCSS) and other such deposit accounts under Government schemes.

Cover-page of pass-books of all banks should compulsorily have all details submitted in account-opening forms including nominee-details. The inclusion of nominee details on pass-books will allow nominees to claim rights on the death of the account holder by going through left-out important documents including pass-books after the death of the account holder. All banks especially public-sector ones should have a common and uniform style of forms used for various banking purposes with provision to download the same after filling on the computer like is a facility available for application forms for passports. Additional facility to email computer-filled forms with necessary enclosures like copies of ID proof, PAN-card etc to the Bank can save huge man-hours of bank staff in re-filling all details on the computer apart from eliminating any chance of wrong/incomplete entry in computers. Customers can go to banks just to put signatures on such emailed computer-filled forms. A system should be formulated whereby all requirements like Minimum Balance, interest rates, bank charges and other procedures may be uniform for all public-sector banks.

(The writer is a Guinness Record Holder and RTI Consultant; views are personal)