The surfacing of the shameful skullduggery in the accounting for derivatives at the IndusInd Bank, presumably, with the connivance of the top echelons, sheds a sordid light on the quality of persons helming such institutions and the lack of supervision, governance and the accountability of the board of directors, tasked to oversee. The regulator is equally guilty.
The inglorious exit of the Bank’s chief executive officer (CEO) and the deputy, was perhaps, quite delayed, as the issue could not have escaped the notice of the board of the bank earlier, its auditors, or the regulator.
There is every reason to surmise that the matter must have surfaced much earlier, as it is said to be a practice in vogue for over five years.
It is very unlikely that any individual, by one self, could have manipulated the accounts, in today’s environment of sophisticated accounting software and controls.
This ought to have been well known down the line, to the board, the auditors, but believed, as manageable and not a serious enough risk to be scared about the consequences, if found out!
The private sector in the country has been periodically seeking the widening of the doors to start new banks and also permit industrial groups to set up one.
It has long since forfeited its voice to such a liberal dispensation.
From, Axis Bank and Bandhan Bank, right up to YES Bank, almost every alphabet can represent one or the other bank, afflicted by a scam of some sort.
In none of the instances, did the so-called independent board of the bank, blow the whistle, call in the Reserve Bank of India (RBI), proactively, to probe; change the management, or take some remedial action.
ICICI Bank can be shown as an example of how the board headed by an independent chairman, MK Sharma, made light of the scandal surfaced through an external whistle-blower, till the person persisted and the board had no option but to commission an independent probe by a retired Supreme Court judge J Srikrishna.
Lakshmi Vilas Bank (LVB) and Punjab and Maharashtra Cooperative (PMC) Bank are extreme cases, where the respective top management had brought the bank to ruin. In LVB’s case, the mercy of RBI saved its depositors, but the PMC ones were not that lucky!
There are several others, where the top echelon and the board got away lightly, without making public the forensic audit reports, and the CEO walked out with little consequences for the damage inflicted. The directors continued on the board.
While the story of private banking is deplorable, the solace that it is possible to stand tall and be inflexible when lured with opportunistic personal gains by bending one’s principles, comes from a leader of a public sector bank (PSB)!
Unfortunately, one has to go back half a century in time to find that example.
If, as often spoken, persons of great virtue are only to be found among those who lived in a previous age (yuga), 50 years is like the present!
The infamous emergency declared in the country, which would soon mark its golden jubilee, caused Sanjay Gandhi, the son of the then prime minister, to wield extraordinary power. An extra constitutional authority!
One of the industry captains well known to him had approached the State Bank of India (SBI) for restructuring a bad loan. SBI had, even then, far ahead of the times, a strict standard operating procedure (SOP) for such arrangements. In that particular case, it mandated the industrialist to step down and appoint a professional manager, in consultation with the Bank.
Industrialists may escape to far-off islands, but are not known to step down from their entitled positions as the head of the company! This person, as well, scandalised by the condition specified by the Bank, reached out to his all-powerful friend for succour.
The finance minister (FM) of the day was summoned to the court of the prince. (This is sometimes quoted as YB Chavan. But the record shows that it can be only C Subramaniam or his deputy, Pranab Mukerjee).
Any FM, being told to put in a friendly word to the chairman of a government bank, to overlook some rule of the bank, could be forgiven to have replied, “Please leave it to me. Your Majesty shouldn’t be bothered with such minor matters. Will get it done in a few minutes.”
The chairman was contacted and promptly came the reply that he had no powers to waive any condition in a loan restructuring proposal! The minister was stunned. When the Constitution of the land was being changed with aplomb, how could the Bank’s internal rules be so inflexible!
The Bank’s chairman had such a public reputation that the minister had no option but to inform his boss that he failed. The boss promptly commanded that the offending public servant be brought before him for due counselling.
The order was conveyed to the Bank’s head. The latter, with little hesitation, said that the Gandhi scion had no official position to call him, and he would not meet someone without an official status.
Lèse-majesté!
The prince erupted in anger, and ordered the immediate dismissal of the chairman. The minister, to avoid the unpleasantness of conveying an obnoxious instruction, approached the chairman for taking up a bigger assignment outside the bank, as chairman of the banking commission.
The chairman was only too pleased to occupy both the roles, which prompted the minister to seek his resignation as the last ditch effort to save the blushes for all concerned. The chairman was quick to reject the suggestion and said he may be dismissed as he had no intention of resigning.
It was a constitutional crisis of unimaginable proportion! When elected state governments were being sent home with ease, a functionary of the bank that was fully under the little finger of the finance ministry, could not be dismissed.
The law governing the SBI allowed for dismissing the chairman only for a ‘due cause’.
The ever-ready central bureau of investigation (CBI) was summoned to investigate the chairman for any misconduct or corruption. They could only come up with letters sent by him to various companies seeking donations for a charitable cause.
Before the eyes of the sleuths could light up having found a perfect reason to charge him for corruption, they found the letters sent were merely forwarding an appeal by the then-secretary general of the United Nations (UN), U Thant, for supporting the concerned charity!
With all the doors firmly shut, the only option was to amend the SBI Act, to assume the powers to dismiss the chairman! It was hardly difficult, with a captive legislature and a servile head of the state!
On 4 August 1976, the chairman was dismissed by the government, and one of his admirers who worked in the Bank then, N Vaghul, recollects that no one in the Bank was courageous to see off the person at the gate.
The exiting leader took the high road of honesty to glory, leaving the government of the day in shameful disgrace for its actions!
Since then, the name, Raj Kumar Talwar has come to symbolise what it is to live by high ideals even when the most formidable force is brought to browbeat a person.
Every once in a while, Mr Talwar’s uprightness surfaces in public consciousness.
The nettlesome question is: Does it sufficiently permeate the governing sprit in the boardrooms of the banks and other institutions?
If interested to know more on R K Talwar, the book ‘Values in Leadership’ by N Vaghul, can be read.
(Ranganathan V is a CA and CS. He has over 44 years of experience in the corporate sector and in consultancy. For 17 years, he worked as Director and Partner in Ernst & Young LLP and three years as a senior advisor post-retirement, handling the task of building the Chennai and Hyderabad practice of E&Y in tax and regulatory space. Currently, he serves as an independent director on the board of four companies.)
It is good to know that India had and I hope still has such principled individuals.
When people are threatened with dismissal or demotion, they cave in because they covet the money, power and prestige that accrues from the position they hold.
Their personal greed gets in the way of doing what is right.
I hope it never happens in India that such an individual is threatened with loss of life though this happens to whistle blowers and RTI applicants in India.
I remember that there was the case of a judge who died mysteriously while he was investigating a person linked to political power at the center. I don't know if anything further happened in that case but thankfully India has not seen such an event, at least that I have read about.
Threat of losing one's life makes us think of mafia-raj but that is what is happening in the political sphere in India today.