• India
  • September 29, 2020

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JAG MOHAN THAKEN 

Current incident of  Punjab & Maharashtra Cooperative (PMC ) Bank failure has once again shown the ugly face of Indian Banking System(IBS) . It has shattered the belief of lakhs of  people who deposit their hard earned money in the banks to keep it safe and secure . But, it has also unmasked that how the bank regulators including RBI and NABARD  , managements , internal auditors  and statutory auditors are unserious and keep their vigilant eyes closed.

ALICIA TUOVILA  in an article in Investopedia.com , defining  Statutory Audit , states , “ A statutory audit is a legally required review of the accuracy of a company’s or government’s financial statements and records. The purpose of a statutory audit is to determine whether an organization provides a fair and accurate representation of its financial position by examining information such as bank balances, book keeping records, and financial transactions.”

 There is a saying “   Saamp ko nahin , Saamp ki  Maa ko mariye jo anginat Saamp paida karti hai.”(Don’t kill the snake , but kill the mother of snakes which gives birth to hundreds of snakes.)

Above mentioned auditing and checking  authorities , responsible for curbing the birth of snakes in the IBS , should be kicked off with a hard hit . If they  can’t even notice or smell the internal health of the Banks during their off- site and on-site inspection and  audit period , then what kind of  surveillance  they are keeping ?

PMC Bank , a cooperative bank operating in seven states with 137 branches , having a deposit of Rs. 11617 crore  , a loan portfolio of Rs. 8383 crore , net profit of Rs. 99.69 crore  and a declared  NPA of mere 3.76% in its 31.03.2019 balance sheet . What a glorious picture the bank was sprucing up ! Then what were the reasons of its sudden collapse ? Keeping aside the rules &regulations , distorting all  bars and codes  , the bank had reportedly lent a major portion of its loan portfolio nearly 70% of total advancement to a single entity  HDIL , which gone bad . RBI failed to identify the violation of rules by the PMC bank , why ?

PMC bank collapse is not the first incident in IBS , Neerav Modi & Mehul Choksi  caused an alleged fraud of Rs. 13570 crore to Punjab National Bank and Vijay Mallya eloped after giving a jolt  of Rs. 9000 crore .

During the financial year 2018-19 , 6801 fraud cases involving an amount of Rs. 71500 crore have been detected  in the Indian Banks and this shows only detected face , there may be some higher jerks which are still waiting to see the light .

During the first quarter  (April to June ) of this fiscal year of 2019-20 , frauds worth Rs. 32000 crore have rattled the 18 Public Sector Banks or Govt banks . An RTI answered by RBI reveals that 2480 fraud cases defrauding the amount of Rs. 31898.63 crore   have been lime lighted . 38 % of the chunk  i.e  1197 cases of fraud involving an amount of Rs. 12012.77 crore relate to SBI alone . Allahabad Bank with 381 cases and amount of Rs. 2855.46 crore  got the second position and the Punjab National Bank , despite having a deep wound of fraud of Rs. 13000 crore in February , 2018 by the big whale Neerav Modi ,   got the third position with a fraud of Rs 2526.55 crore during these three months of this year .Other Public sector banks  are also not far behind , they also play major role in keeping the fraud  train running  with nearly the same speed .

What safety to the public money in Indian Banks ?

The  BJP government led by Prime Minister Narender Modi in 2016 enforced the public to deposit their hard earned all life savings to the banks by imposing  NOTE- BANDI  , which kept the earnings of the people on stake without making an arrangement to secure and guarantee the entire deposit . Presently the deposits of a person  upto the maximum  limit of Rs. one lakh in a bank are guaranteed by DICGC (Deposit Insurance and Credit Guarantee Corporation ) set up with a mission   to contribute to financial stability by securing public confidence in the banking system through provision of deposit insurance, particularly for the benefit of the small depositors.

Banks covered by Deposit Insurance Scheme are (I) All commercial banks including the branches of foreign banks functioning in India, Local Area Banks and Regional Rural Banks and  (II) Co-operative Banks – All eligible co-operative banks as defined in Section 2(gg) of the DICGC Act .

What RBI states about the role of DICGC ?

Reserve bank of India under the head of frequently asked questions regarding the role of DICGC states:

What does the DICGC insure?

In the event of a bank failure, DICGC protects bank deposits that are payable in India.

The DICGC insures all deposits such as savings, fixed, current, recurring, etc. except the following types of deposits.

(i)  Deposits of foreign Governments;

(ii) Deposits of Central/State Governments;

(iii)Inter-bank deposits;

(iv) Deposits of the State Land Development Banks with the State co-operative bank;

(v) Any amount due on account of any deposit received outside India

(vi) Any amount, which has been specifically exempted by the corporation with the previous approval of Reserve Bank of India.

What is the maximum deposit amount insured by the DICGC?

Each depositor in a bank is insured upto a maximum of Rs.1,00,000 (Rupees One Lakh) for both principal and interest amount held by him in the same capacity and same right as on the date of liquidation/cancellation of bank’s licence or the date on which the scheme of amalgamation/merger/reconstruction comes into force.

Never  put your all eggs in a single basket

The elderly retired persons or the present working employees keep their funds in the banks to give a security cover to their future life  and  the farmers and businessmen also have their savings / sale proceeds  or working funds in their accounts with the banks  for their day to day needs . Also the government has made such harsh rules & regulations which  stop the public from keeping cash in their white  pockets , so the people are forced to keep money in banks. But when the money of the public is not safe even in the government  banks and no security cover from the banks or the government  has been provided to the depositors beyond Rs.One lakh per bank (Not Per Branch ) , where the people should go ? Such type of restrictions and insecure environment lead to unaccounted money and situation of chaos. 

Keeping in mind all the consequences , the public should not keep more than Rs. one lakh in a single bank . If a person keeps his money in different branches of a single bank , even then total of his all deposits in all the branches are counted as one account  and no security  coverage from DICGC to more than Rs. one lakh deposit even in scattered accounts in the same bank . In the present scenario , the  public should  follow the thumb rule “Never  put your all eggs in a single basket.”

Keep your deposits in different banks and not in different branches of a single bank .However it’s not an example of good governance and the government should come forward to frame rules for securing the hundred  percent earnings of its  subjects