Why should public sector banks be impervious to scrutiny and calls for greater transparency? Should the average taxpayer who trusts a bank with his life savings not be entitled to know how a bank is writing off its bad debts? These are the legitimate and pertinent questions raised by a query filed by Raju Vazhakkala in his RTI request. On Wednesday, Vazhakkalas questions were answered through a high court ruling, which said public sector banks should disclose details of cases pertaining to persons and establishments whose bad debts of over Rs 100 crore have been written off.
This is a great step forward in the quest to regulate the largely opaque public sector banking system. Constant change in the banking system is what makes it extremely difficult to monitor diligently from a regulatory perspective. Ultimately all regulation will fail if the legislators of this country fail to address fundamental root issues. As of now bad debts are one of the biggest problems plaguing the Indian banking system.
In an era of greater transparency and ongoing regulatory constraints, what does the future hold for Indian banking? The future does not look very bright as of now. Over the past few years, Indian banks have sought to recast loans which look like they will enter the bad debts column. The way they have gone about their business is reminiscent of the dubious tactics used in the 2008 financial crisis. According to information obtained by a noted RTI activist, Sanjay Shirodkar, around 14 PSUs such as SAIL, Coal India, ONGC, Bank of Baroda, NTPC and Airports Authority of India had showed bad debts worth more than Rs 7,500 crores between 2006 to March 2012. This pathetic state of the balance sheets is probably because the Indian banking system has been regularly taking haircuts: the difference between the market value of an asset used as loan collateral and the amount of the loan. What’s worse they have been extending repayment periods and giving loans to sick private sector companies.
The loans extended to companies such as Kingfisher, Essar Steel, among others, amounting to a whopping Rs 30,000 crore, have gone bad. Furthermore in its judgement, the Delhi High Court has held that such an obligatory disclosure involves a large measure of public interest. The State Bank of India’s contention that it has a fiduciary relationship with the account holders and it should be exempted from disclosure under Section 8(1)(e) of the RTI Act is a tenuous claim at best. The bank can’t hide under the plea of confidentiality to avoid disclosing the quantum of its Non-Performing Assets.
Transparency and public interest should override confidentiality clauses. The judgement further stated that the sheer extent of the write-off would, perhaps, inject an element of public interest in the matter, which is the exception provided for in Section 8(1)(e) of the RTI Act, 2005. It is high time that the Public Sector banks of India modernise their operations and get in line with the best practises of the 21st century. The reason for poor performance of these banks is the total lack of staff accountability due to policies of the Government. There is a widely held perception amongst the general public that any official who is totally lethargic in his/her approach and refuses to take financially sound decisions is never called to question. This lack of accountability needs to change. This high court ruling is a positive step in that direction.