Last week, I wrote about how the government’s refusal to listen to stakeholders often led to serious embarrassment to itself. Two developments this week hold out hope that the government maybe beginning to listen, instead of being guided by selective data and wrong advice from its bureaucrats.
First, it appears to have heard the appeals from chartered accountants (CAs) and has extended the time for corporate tax filing. Moneylife published a detailed piece by CA Ameet Patel explaining the torture unleashed by the faulty new portal and punitive regulation – Read: Tax Torture – Season 2.
Second, it finally realised that reducing mobile telephone services to a duopoly was not in public interest and has taken a concrete step towards giving VI (Vodafone Idea) and Tata Teleservices a chance to survive, by converting their dues to equity.
But there is no cause to celebrate yet. If anything, there is increasing evidence of how this NDA (National Democratic Alliance) government, which projects itself as strong and action-oriented, has given unbridled power to bureaucrats and regulators, without oversight or accountability for their actions. Consequently, it is the government that is seen as reckless and uninformed. Let me elaborate with three examples.
1. UPI Frauds
Last week, The Ken wrote a long piece about how “The UPI frauds undermining India’s payments fairytale”. While the ease of payments offered by UPI (Unified Payments Interface) has been celebrated as a ‘fintech’ success at a global level, the article talks about the high level of fraud because confidence tricksters find it exceedingly easy to defraud people using UPI. More shocking is the revelation that “payments companies have no institutional mechanism to help them go after fraudsters. Only banks are mandated to report frauds, not payments apps. There’s no infrastructure through which they can share data on phone numbers tied to scams either. Nor is there a central pool of information. While companies inform NPCI (National Payments Corporation of India) about new scams, they don’t share data about scamsters with each other…” The article goes on to say that victims first approach banks when they are defrauded “but banks are reluctant to pursue it further…”
UPI frauds have been around for at least four to five years and are, perhaps, growing in tandem with its explosive growth. So why do we still lack a proper mechanism for reporting fraud and ensuring that people get back their money? Why is it left to the police who do not even have adequate infrastructure to deal with digital fraud?
A senior official, with long experience in technology and investigation, tells me, “Like most other areas of innovation, risk management comes as an afterthought. The ability to raise a dispute should have been a part of the platform itself. Card payment systems have had such mechanisms for several years. Since UPI’s interface is exclusively electronic, it would have been easy to build such a feature. The UPI system architects probably did not prioritise this.” NCPI could have set up an industry-level coordination mechanism to connect all the stakeholders; but they are, probably, busy with the growth of the platform, to worry about this, he adds.
Well, NPCI is a not-for-profit entity, not a regulator. The buck stops with its parent, the Reserve Bank of India (RBI), and the finance ministry. When is the last time they have engaged with stakeholders? The government is so busy celebrating UPI’s success that any talk about rising frauds is dismissed as criticism and negativity, or the victims are blamed for their ignorance. The biggest victims of UPI frauds are senior citizens and economically weak Indians who have little chance of being heard by policy-makers.
This is true of the Unique Identification Authority of India (UIDAI) as well. While the Aadhaar card is mandatory for a variety of transactions and interactions with government, it continues to have a very poor redress mechanism and updation or verification can be instant or take up to 90 days. This is also true of the still-glitchy MCA21, the statutory reporting portal of the ministry of corporate affairs (both being constructed and run by Infosys Ltd). According to a company secretary, while the portal has a “ticket system to flag problems, we get idiotic response when we lodge complaints and writing to senior bureaucrats gets no response at all.”
The unwillingness to listen to feedback actually allows bureaucrats, policy-makers and regulators to misguide the government with selective data/information and unleash reckless action, or ill-conceived policies that create the image of a ‘ruthless government’. Consider how dangerous this can get.
2. Yes Bank’s AT1 Bonds
In March 2020, when private banks joined State Bank of India (SBI) in a public-private bailout of Yes Bank, what was an innovative new move actually left a bitter taste for two reasons. First, RBI stubbornly refused to permit global funds to participate in the rescue; secondly, losses inflicted by the sudden decision to write off AT1 (additional tier-1) or special tier bonds against the pleas by the entire banking system. We had believed that someone at RBI was responsible for the decision that inflicted a crippling loss of Rs8,400 crore on thousands of hapless people—mainly senior citizens and investors of two mutual funds.
On 19 March 2020, I had written, “The decision to write down the bonds was not even in the gazette notification of 13th March (see image below), nor was it a part of RBI’s reconstruction announcement. (Yes Bank Is Reconstructed, but Is a Big Turnaround Likely?)” Last week, a report by The Mint newspaper added another twist to this dubious saga. It says that a response to a Right to Information (RTI) filing, the finance ministry has indicated that “the RBI was not originally in favour of the write-off of AT-1 bonds” and supported the conversion to equity. But the department of financial services (DFS) decided this was not ‘appropriate’ and prevailed upon RBI to drop the plan overnight. It explains what I wrote in March 2020 about the sudden about-turn.
Were DFS officials, who overruled the banking regulator, aware of the ground reality of AT1 bonds being hard-sold to senior citizens as safer than fixed deposits? Did they know that their action would wipe out the savings of lakhs of people, including mutual fund investors? Since RBI, apparently, does not seem to have had the courage to stand its ground, the faceless bureaucrat responsible for the decision got away without any consequences.
He may even be rewarded with powerful, post-retirement regulatory postings and wreak similar havoc again. What is worse, RBI is now taking an anti-depositor stand in court, refusing to admit mis-selling, despite ample evidence, including emails from bank relationship managers (RMs) being available in the public domain and which were even published by me on 12 March 2020, when I questioned RBI’s accountability in the whole dubious saga (Read: Yes Bank: Smart Rescue Plan but What about Regulatory Accountability?). Meanwhile, Securities & Exchange Board of India (SEBI) has taken a diametrically opposite stand on the matter, making a mockery of the process of engagement between regulators and their ministries.
3. RBL’s Change of Guard
The third example is the recent upheaval caused at RBL Bank over the Christmas weekend. In a shock announcement, the Bank said that Vishwavir Ahuja, managing director (MD) and chief executive officer (CEO) had gone on leave and interim charge handed over to the executive director. There was panic and people expected a run on deposits and massive impact on the stock price.
As it turns out, there was no major issue at the Bank. Realising the possible fallout, RBI issued a rare press statement on Monday morning to say all is well. So why was Mr Ahuja’s term, which was to end in June, cut short with such regulator-manufactured panic and drama? Had there been a run on bank deposits, the main reason would have been that people do not trust RBI to identify issues and act fast enough, or in a manner that is fair to all stakeholders.
My sources in the Bank as well as RBI, say it was largely an ‘ego clash’ between the former MD and the RBI deputy governor in charge. It is amazing that RBI and its senior official face no consequences for triggering such panic, based on ‘ego clash’. On this matter, the finance ministry has maintained a public silence.
I have given just three recent examples of what happens when a government does not listen, stops questioning policy-makers and regulators and is hostile to criticism. It ends up destroying accountability, breeds arrogance and disdain for stakeholders among bureaucrats and only hurts the government of the day—whether it is UPA2 or NDA2.
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Perfect compendium of NDA Government and RBI's blunders and fiasco during the last one year.
The less we say, the better we are because this government is not going to listen to any public feedback/outcry.
And on top of that, the bureaucrats handling such cases are glorified and rewarded in their post retirement lucrative postings.
So just keep shut and pray that some good sense prevails and this government stops harassing common citizens and tax payers also in the process. Remember, this only government was mulling the idea of "bail-in" of savings deposits of common citizens simply because the bankers gave loans to completely wrong and suspect borrowers and did not make any sincere attempt to recover the money back and thereby creating a huge NPA and therefore sought to adjust this NPA folly by "bail-in" / "write-off" of saving bank deposit holders money.
Excellent coverage of incidents and explanation that even ordinary people like me can understand.
One problem is that the officials who are promoted from within on the basis of seniority do not have the know-how to handle these new developments in finance.
Second problem is that no single department head is held accountable for the havoc caused by irresponsible actions of bureaucrats. The lower babus point to more senior babus but where does the buck stop?
MLFoundation has been keeping an eye on the mismanagement in the financial sector.
This cannot be an anomaly. Other sectors must be equally hobbled.
This whole system is rotten because IAS which supplies quite a few of the babus does not believe in specialization, so the babus get shunted from one place to another. May be this is done deliberately so no babu can develop the expertise to question the politician who is the ultimate boss.
Elsewhere in the world people with experience in the field are valued, in India they are regarded as a threat.
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Fiercely independent and pro-consumer information on personal finance.
30-day online access to the magazine articles published during the subscription period.
Access is given for all articles published during the week (starting Monday) your subscription starts. For example, if you subscribe on Wednesday, you will have access to articles uploaded from Monday of that week.
This means access to other articles (outside the subscription period) are not included.
Articles outside the subscription period can be bought separately for a small price per article.
Fiercely independent and pro-consumer information on personal finance.
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The less we say, the better we are because this government is not going to listen to any public feedback/outcry.
And on top of that, the bureaucrats handling such cases are glorified and rewarded in their post retirement lucrative postings.
So just keep shut and pray that some good sense prevails and this government stops harassing common citizens and tax payers also in the process. Remember, this only government was mulling the idea of "bail-in" of savings deposits of common citizens simply because the bankers gave loans to completely wrong and suspect borrowers and did not make any sincere attempt to recover the money back and thereby creating a huge NPA and therefore sought to adjust this NPA folly by "bail-in" / "write-off" of saving bank deposit holders money.
One problem is that the officials who are promoted from within on the basis of seniority do not have the know-how to handle these new developments in finance.
Second problem is that no single department head is held accountable for the havoc caused by irresponsible actions of bureaucrats. The lower babus point to more senior babus but where does the buck stop?
MLFoundation has been keeping an eye on the mismanagement in the financial sector.
This cannot be an anomaly. Other sectors must be equally hobbled.
This whole system is rotten because IAS which supplies quite a few of the babus does not believe in specialization, so the babus get shunted from one place to another. May be this is done deliberately so no babu can develop the expertise to question the politician who is the ultimate boss.
Elsewhere in the world people with experience in the field are valued, in India they are regarded as a threat.