While Raghuram Rajan often sounds like he is yet to come to terms with his effective removal from the Governorship of the Reserve Bank of India (RBI), he and his successor Viral Acharya do have a point when they panned the idea mooted by the central bank to allow the corporate sector to enter banking. In a piece, they argued that this would be devastating and would lead to “connected banking” and it isn’t hard to see their point of view. We have seen what happens with “connected banking” and the dramatic collapse of Yes Bank and the more recent rescue of Laxmi Vilas Bank by the RBI are cases in point. As Rajan and Acharya asked, “How can a bank make good loans when it is owned by the borrower?”
The central bank would be stupid to ignore the advice of their own former honchos as well as India’s top legal eagles that were consulted on this. India has had far too many banking disasters in the recent past for another one to be made through bad policy making. Even if the RBI promises to continue through regulatory oversight, the scandals involving Vijay Mallya and Nirav Modi highlight that promoters can bend the rules and cover their tracks (for a while at least) if they want to. Even if corporate-owned banks are prevented from giving loans to non-financial entities of the corporate, what will stop them from giving loans to relatives of bureaucrats and politicians in order to curry favour? Even in the best-run banks, allegations of underhand dealings and impropriety exist as we are learning in the case of ICICI Bank and their disgraced former chief executive against whom there are damning allegations. Instead, it would be more prudent for the RBI and the Ministry of Finance to explore possibilities of privatising India’s burdensome public-sector banks. Are the rule changes being made to assist one or two particular corporate groups in India and make them even stronger? Until the RBI and the government cannot answer this one question, one will assume it to be true. Ergo, this bad idea should be dispensed with forthwith. As for private lenders failing, just remember the lasting impact of the IL&FS fiasco.
On September 4, the Reserve Bank of India (RBI) introduced changes in the norms for priority sector lending (PSL) with the stated objective of “enabling better credit penetration to credit-deficient areas, increase in lending to small and marginal farmers and boosting credit to renewable energy and health infrastructure.” Under PSL, the RBI mandates a certain percentage of a bank’s lendable resources to specified areas. The policy — a legacy of the socialist era — has led to blatant misuse and misappropriation of funds and is far from helping the most vulnerable groups and sectors for whom it is intended. It needs to go as today the banking network is capable of meeting credit needs of all, provided the sector is left to itself. However, faced with contraction in the Gross Domestic Product (GDP) growth by a whopping 23.9 per cent and credit growth at a low of 6.7 per cent during the first quarter (Q1) of the current financial year (FY), the RBI introduced changes in the norms for PSL. But what is the connection between PSL and growth?
For several decades, successive governments followed a policy of directing banking credit to specified sectors, which had remained neglected for long and needed the required push to catch up with the country’s growing economy. The RBI mandates that a certain percentage of a bank’s Adjusted Net Bank Credit (ANBC) or lendable resources be given for PSL. For commercial banks, including foreign banks, this is 40 per cent, while regional rural banks (RRBs) and small finance banks (SFBs) are required to allocate a whopping 75 per cent for PSL. Within the over 40 per cent limit, there are sub-limits; for instance, agriculture gets 18 per cent of the ANBC. Although the guidelines do not lay down any preferential rate of interest for PSLs per se, generally such loans are “cheaper” and “more accessible.” The chargeable rate of interest is as per the RBI’s directives and varies from sector to sector,
As per the RBI’s directive, a short-term crop loan of up to Rs 3,00,000 (for animal husbandry, dairy and fisheries farmers, this limit is Rs 2,00,000) is available at a subsidised interest rate of seven per cent; an additional incentive of three per cent is provided for prompt payment. The effective interest cost works out to only four per cent. To make it happen, the Union Government offers to banks interest subvention of two per cent per annum and prompt repayment incentive (PRI) of three per cent. This comes at a huge cost to the exchequer (during 2019-20, the Government spent Rs 18,000 crore). The banks, too, share a good portion of the cost as reimbursement given by the Centre does not fully cover the interest subsidy extended by them to farmers (on a total farm loan of about Rs 13,00,000 crore given during 2019-20, interest subvention at the rate of two per cent alone works out to about Rs 26,000 crore against a budgetary support of only Rs 18,000 crore. If we include PRI, the shortfall would be even higher). It is, therefore, natural to ask whether farmers are actually deriving the intended benefit?
According to a study by the RBI’s internal working group, in several States, the quantum of crop loan was found to be higher than the value of all agricultural inputs (in Andhra Pradesh, during 2015-2017, this was 7.5 times the value of agri-inputs). Considering that crop loans are taken mostly for buying agricultural inputs, when the value of the former exceeds the latter, it clearly points towards diversion of funds to non-farm uses. Even out of credit that flows to agriculture, a disproportionately high share is cornered by large farmers viz. those with farms over 10 hectares. During 2016-17, large farmers, who account for 0.6 per cent of the total number, got away with 41 per cent of the agri-credit. Semi-medium and medium farmers, owning between two-10 hectares (they are 13.2 per cent of all farmers) get bulk of the balance 59 per cent agri-credit. Small and marginal farmers with holdings up to two hectares (they are 86.2 per cent) get very little; in fact, nearly 41 per cent of them don’t even have access to banks.
Asset creation in agriculture holds the key to sustainable increase in the farmers’ income. Yet, the share of investment credit in total farm credit is only 25 per cent (down from 50 per cent in 2000). A big chunk of this also goes to medium and large farmers. According to the committee on “Status of Farmers’ Income: Strategies for Accelerated Growth,” that was set up to identify ways to double farmers’ income, small and marginal farmers finance 30.8 per cent and 52.1 per cent of their investment in assets through informal sources viz. moneylenders, traders and input dealers (albeit at high interest rate) and so on, as they don’t have access to banks. The irony is that large, medium and semi-medium farmers, having borrowed from banks at such low rates (four per cent), further lend this money to small and marginal farmers at a much higher rate, thereby making a huge profit. This is clearly a case of better off farmers and even non-farmers profiteering from the State largesse, riding piggyback on the most vulnerable for whom it is meant. The misuse is rampant even in other areas of PSL, say the micro, small and medium enterprises (MSMEs) sector, which gets 7.5 per cent of bank lending. Yet, our policy-makers continue with PSL and keep adding more and more sectors under its ambit and shuffling the limit under each. Thus, there are a host of other categories such as export, education, housing, health, social infrastructure, renewable energy and now, start-ups.
In September, the RBI increased the targets for small and marginal farmers from the existing eight per cent of the ANBC to 12 per cent, applicable from 2020-21 onward. It also increased credit limit for farmers producers organisations (FPOs) and farmers producers companies (FPCs) to Rs 2 crore per borrowing entity. The moot point here is when already the subsidised credit is not reaching where it ought to be reaching, what is the use of pouring more in? From FY 2021-22, a higher weightage of 125 per cent would be assigned to incremental priority sector credit in the identified districts, where the per capita PSL is less than Rs 6,000, and a lower weight of 90 per cent would be assigned for incremental priority sector credit in the identified districts, where the per capita PSL is more than Rs 25,000. This is intended to help 184 districts with low per capita PSL credit flow. Will things improve merely by assigning higher weightage?
To give a boost to renewable energy, the RBI has increased the limits for priority sector lending. Thus, loans up to Rs 30 crore per borrower for solar-based and biomass-based power generators, windmills, micro-hydel plants and so on will now be eligible for PSL (up from Rs 15 crore). Likewise, the limit for loan for building healthcare facilities, including those under Ayushman Bharat in Tier-II to Tier-VI centres, has been increased from Rs 5 crore per borrower to Rs 10 crore. Start-ups, which conform to the definition laid down by the Ministry of Commerce and are engaged in activities other than agriculture and MSMEs, can avail loans up to Rs 50 crore under the PSL. What is the sanctity of these limits? Is it the case that an entity which needs Rs 31 crore for setting up a solar-based plant won’t be eligible for PSL? Or, the application of a start-up needing a loan of Rs 51 crore will be rejected. This is bizarre. Putting in place such a system brings in a lot of discretion and gives the bank manager or officials a lot of room to manoeuvre. From the perspective of the borrower, every aspirant — irrespective of his/her scale of operation — will play with numbers to keep his/her borrowing proposal within the threshold. This is the surest invitation to nepotism and corruption.
To conclude, the extant highly convoluted system of “directed lending,” specifying targets for sectors in a typical top-down approach that keeps bank officials busy with target fulfillment and compliances, is pregnant with blatant misuse and misappropriation of funds. It is unlikely to serve the desired objective of helping the most vulnerable groups for whom it is intended. At the same time, it imposes a huge collateral damage. For instance, of the outstanding bank credit of about Rs 100,00,000 crore, when 40 per cent or Rs 40,00,000 crore is PSL given at a subsidised interest rate, banks are bound to charge more on the remaining 60 per cent to remain viable. This raises the cost of capital to all those enterprises. PSL needs to go. Banks should enjoy the freedom to lend and focus more on conducting due diligence, credit appraisal, hand-holding of borrowers, and monitoring fund use. For the most vulnerable, the Government may give interest subsidy but that should be directly credited to their bank accounts.
(The writer is a New Delhi-based policy analyst)
In cheque bounce cases, we need to find a balance so that malafide intent is punished while other, less serious offences are open to negotiation
Issuing of post-dated cheques or signing of irrevocable mandates to banks to debit the agreed Equated Monthly Installment (EMI) on a fixed date every month is a common practice when loans or goods purchased on credit are repaid on a regular basis. If the cheque or automatic electronic debit is dishonoured by the bank for want of funds/mandate and the debtor fails to clear the dues within 15 days of a written notice by the bank (to be given within 30 days of dishonour), the creditor can file a criminal complaint. This is because the debtor commits an offence punishable with up to two years in jail or fine up to two times the amount of the cheque issued or both. The criminal case can be dropped in case of a compromise or settlement. This is provided under Section 138 of the Negotiable Instruments Act, 1881. The objective of all this is to promote the efficiency of banking operations and to ensure credibility in transacting business through cheques. The 1881 Act was amended in 1989 to introduce a one-year jail term that was enhanced to two years in 2003. But the offence was made “compoundable”, meaning that the criminal proceedings can now be dropped if some compromise is reached between the two parties.
India, with its huge population, has problems that are unique to it and the overburdening of resources or institutions is one of them. So, it is not surprising then, that a total of 346 lakh court cases were pending in the country on October 29 this year. Out of this, there were over 251 lakh criminal and over 95 lakh civil cases, of which over 199 lakh criminal cases were more than a year old. A Public Interest Litigation (PIL) filed by the Indian Banks’ Association (IBA) in 2013 had highlighted that out of the pending 270 lakh court cases, about 40 lakh were cheque bounce cases, involving about Rs 1,200 crore. These cases, estimated to be about 20 per cent of the total caseload (2018), are clogging the already overburdened criminal courts. Do we have enough jails and judges to convict every offender? Shouldn’t we have a hierarchy or priority list of offences to be targetted by the prosecution and adjudicating systems? Should the debtors, who have already mortgaged movable and immovable properties, be further subjected to criminal liability?
The Government is considering decriminalising cheque bounce cases and some other “civil wrongs.” On June 8, the Finance Ministry sought stakeholder comments on its proposal to decriminalise 39 “minor economic offences” created under 19 Acts, including non-repayment of loans and dishonour of a cheque or automatic electronic debit for “improving the ease of doing business and helping unclog the court system and prisons.” However, the decriminalisation proposal has been opposed by the IBA, the Confederation of All-India Traders, the Finance Industry Development Council, the Federation of Industrial and Commercial Organisation and some Bar Councils.
The Bar Council of Delhi has highlighted the effect of the pandemic on lawyers in the country and how every advocate is facing a financial crisis. The Bar Councils of Maharashtra and Goa, too, have opposed the proposal to decriminalise Section 138 of the Negotiable Instruments Act. They contended that the offence of cheque bounce should not be termed as a “minor” infraction by the Government in its bid to decriminalise the same. For lawyers, decriminalisation clearly means an adverse impact on their livelihoods. For traders selling on credit, there is a genuine problem of having no security against customer default. Instalment purchase of goods on EMI is supported by post-dated cheques, and no one will accept cheques if their bouncing is decriminalised. Trade will be left at the mercy of civil litigation that takes several years for justice to be delivered. Even after the current stringent Section 138, more than 20 per cent of all pendency of cases across the country is only pertaining to cheque bounce.
The bankers’ opposition to decriminalisation can also be understood for cheque bounce against unsecured loans. However, there is absolutely no justification for continuing with this additional protection in case of secured loans. While sanctioning EMI-based loans, banks insist on mortgage of immovable property or shares, debentures, fixed deposits and so on. Or they obtain guarantees from employers for deduction from the borrowers’ salary. In such cases, cheque bounce should be considered for decriminalisation to begin with. Borrowers — distressed by the Coronavirus pandemic — have been provided some relief by way of moratorium and deferral of fresh applications for insolvency proceedings but the criminal liability under the Negotiable Instruments Act, 1881, as amended in 1989, 2003 and 2018, remains. Normally, for criminal liability to be pinned to a person, presence of mens rea, malafide intention is a must. However, in cheque bounce cases, malafide intention may or may not be there and need not be proved. A strict liability has been created without going into a cheque issuer’s intentions as a measure to build trust and credibility in cheque transactions.
The objective of amending Section 138 of the Negotiable Instruments Act in 1989 was to add credibility in transacting business through cheques. Current realities are so very different from 1989 when cheque bounce was first criminalised.
Provision of criminal liability — prosecution and imprisonment — on strict liability basis, without the need to prove malafide intention, is an identified deterrent for attracting new investment. It is in larger public interest to declog our criminal courts and jails.
In Kaushalya Devi Massand vs Roopkishore Khore case, the Supreme Court held that the offence committed under Section 138 of the Negotiable Instruments Act cloaks a civil wrong as a criminal act and the gravity of offence under Section 138 of the Act cannot be equated with a crime under the provisions of the Indian Penal Code or other criminal offences.
In Makwana Mangaldas Tulsidas vs. State of Gujarat and others case, the Supreme Court recently favoured decriminalisation of dishonour of small value cheques. The court suggested various ways to deal with the situation of overflowing cheque bounce cases pending adjudication across the country. The apex court suggested developing a mechanism for pre-litigation settlement in these cases.
The Centre, while decriminalising some defaults, has to balance the interests of lawyers, the business community and the welfare of the public at large, especially those who are not wilful defaulters. In cheque bounce cases, we need to find a balance so that malafide intent is punished while other, less serious offences are compounded. As the working of the SARFESAI Act (The Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act) and the Insolvency and Bankruptcy Code (IBC) have shown, the cases of wilful defaults are very few and such offenders continue to dodge the law while a large number of non-wilful defaulters continue to suffer harassment in courts. Public policy is all about balancing conflicting requirements and expectations. Creditors would want to have as many solutions as possible and pursue all those remedies simultaneously. However, such an approach has a deleterious effect on business sentiment. It may end up having a chilling effect on potential borrowers and consumer demand. If fear of imprisonment and litigation charges along with a fine truly had a deterrent effect and resulted in timely payment of cheques, the courts would not have such a big pending caseload. And it is this huge backlog of cheque bounce cases that delays the trial of more serious crimes and at the same time erodes public faith in the judicial system.
Hence, decriminalisation of bounced cheques should be seriously pursued. Secured creditors have remedies available under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 and the IBC, 2016. Cases involving secured lenders should be decriminalised except for borrowers declared “wilful defaulters” or “fugitive economic offenders.” Even in cases involving unsecured creditors, the criminal cases should be continued against repeat offenders and a more lenient view may be taken of first-time defaults and offenders. There should be very clear articulation of legislative intent as to its retrospective or prospective operation. To eliminate a large pendency of court cases, retrospective application based on a differentiating criterion like secured/unsecured creditor and wilful/non-wilful defaulters would be necessary and desirable.
(The writer is former Special Secretary, Ministry of Commerce and Industry)
If the FD range gets embedded in the FRBM Act, it will give sanction to slippages. It will defeat the purpose of fixing a target, which is to obligate the Govt to keep expenses in check
The Finance Ministry is building pressure on the 15th Finance Commission (15th FC) to allow greater flexibility while fixing the fiscal deficit (FD). It wants to adopt a flexible, range-bound FD target instead of a fixed number. With this aim in mind, the Modi Government is reviewing the Fiscal Responsibility and Budget Management (FRBM) Act. The issue was discussed at the Economic Advisory Council (EAC) of the 15th FC, wherein the chairman, NK Singh, cited a similar practice followed by the Reserve Bank of India’s (RBI) with +/- two per cent inflation target while deciding its monetary policy. The immediate prompt for this is the sharp contraction in the Gross Domestic Product (GDP) by about 24 per cent in the first quarter of the current financial year (FY) and a corresponding steep reduction in tax collections even as the expenditure commitments are on the upswing (courtesy the two stimuli already given). As a result, on May 8, the Government raised its gross market borrowing target for the FY 2020-21 to Rs 12,00,000 crore, up from the Rs 7,80,000 crore provided for in the Budget on February 1.
Of this, the Government had already borrowed Rs 7,66,000 crore during the first half of the current FY and plans to borrow the remaining Rs 4,34,000 crore by January 2021. At Rs 12,00,000 crore, the borrowing limit is already set at about 5.8 per cent of the GDP — 2.3 per cent higher than the budgeted FD target of 3.5 per cent. With this and demand for yet another Stimulus III gaining ground, it is not surprising that the Finance Ministry is building pressure on the 15th FC. During the current year, we have an extraordinary situation, so one can understand the desperation. But it is important to recall here that in his budget speech for 2016-17, the then Finance Minister Arun Jaitley had announced the Government’s intent to review the FRBM Act (2003) with a view to make the target flexible (that the announcement was made following the year 2015-16, when it had achieved the FD target of 3.9 per cent, sounds a bit anomalous). He had set up a committee under NK Singh (it included among others, the then Chief Economic Adviser, Arvind Subramanian, and the then Deputy Governor, RBI, Urjit Patel) to examine the issue.
The committee recommended a “glide path” for the next six years, beginning 2017-18. It recommended a FD target of 2.5 per cent, revenue deficit 0.8 per cent, combined Centre-State debt ceiling of 60 per cent and a Central debt ceiling of 40 per cent for 2022-23. Further, it fixed three per cent FD to be achieved during 2018-19. It also allowed the Government to breach the target — by up to 0.5 per cent — in case of “far-reaching structural reforms with unanticipated fiscal implications.”
In the amendment to the FRBM Act vide Finance Bill 2018-19, even while retaining the “escape clause” to cover unanticipated events, the Government adopted the glide path of achieving three per cent FD by 2020-21 instead of 2018-19 mooted by the committee. Further, it set the debt limit of 40 per cent for the Centre to be reached by 2024-25 instead of the committee’s mandate of 2022-23.
This cherry-picking may be seen in the backdrop of the Government missing the FD target for 2017-18 by 0.3 per cent and seeing no hope of achieving three per cent during 2018-19 as recommended by the committee. While presenting Budget 2020-21, Sitharaman has already invoked the escape clause of the FRBM Act to relax the FD targets for FY 2019-20 from 3.3 per cent Budget Estimate (BE) to 3.8 per cent in the Revised Estimate (RE) and for FY 2020-21, from three per cent as per the glide path required under the Act to 3.5 per cent. The one big thing that she did last year was reducing the Corporate Tax rate, which meant a revenue loss of close to Rs 1,50,000 crore annually. The reform was far-reaching and structural but one wonders whether this was an event not anticipated by the Government.
Ironically, the above numbers do not give the true picture of the FD as a lot of expenses, despite being a liability of the sovereign Government, are kept off its balance sheet. These are deferred subsidy payments (DSPs) and extra-budgetary resources (EBRs), a nickname for borrowings by Public Sector Undertakings (PSUs) and other agencies of the Government on its behalf. Including these off-balance sheet items, the FD for 2017-18 and 2018-19 would be about 5.9 per cent and 5.7 per cent respectively. For 2019-20, including DSPs alone, FD would be 5.1 per cent. Add EBRs and the deficit will gallop. For 2020-21, the likely deficit of 5.8 per cent is exclusive of DSPs and EBRs.
There is a short provision in the Budget: Food subsidy about Rs 1,03,000 crore and fertiliser subsidy around Rs 80,000 crore. Plus, there will be a huge shortfall in proceeds from disinvestment by at least Rs 1,50,000 crore as big ticket sales such as Bharat Petroleum Corporation Limited (BPCL) and Life Insurance Corporation (LIC) are unlikely to go through during the current year. This adds up to two per cent, taking the total to 7.8 per cent. Including EBRs, the FD could touch 10 per cent. Already, under the existing dispensation of FD being a fixed number, the Government has a lot of leeway — explicit as well as not so explicit. On the explicit side, we have seen the fiscal consolidation glide path made fairly liberal to suit the budget math as also the revised FD being significantly higher than the target — yet going unpunished (for instance, during 2008-09, the actual FD was six per cent against the target of three per cent as per the FRBM Act, 2003). On the not so explicit side, DSPs and EBRs have been used to camouflage the true deficit.
If the FD range gets embedded in the FRBM Act, this will amount to giving legal sanction to slippages. It will defeat the very purpose of fixing a target which is to obligate the Government to keep the excess of its expenses over revenue within a specified limit. The moment the law itself prescribes a range, say of three per cent-3.5 per cent, even the most discerning Government will take the higher end of the range as the benchmark as from a legal standpoint, violation will happen only when the actual exceeds 3.5 per cent.
To put it differently, providing for a range is a more subtle and sophisticated way of embedding in the legislation a more relaxed target without catching the attention of the not so discerning eye.
The comparison with inflation targeting under the monetary policy to justify FDI range is not all fours. While, the FD target has a direct bearing on budgeting by the Centre (a swing of 0.1 per cent either way makes a difference of Rs 20,000 crore in its borrowing limit), inflation targeting by the RBI does not impact the finances of banks. For a proper comparison, we need to look at the RBI mandated “provisioning” for a loan that becomes an NPA. That is a fixed number, say 25 per cent (for an account remaining unpaid for up to one year), not a range.
It is argued that a range brings an element of predictability in knowing how far the Government can go in expanding its borrowing programme and the resultant impact on crucial parameters like bond yields, interest rate; hence helpful in boosting investor confidence. This is a frivolous argument. Whether it is one fixed number or a range, there is predictability in both the scenarios. The difference is notional as in a range, one looks at the upper end. Unpredictability arises when things such as DSPs/EBRs are done outside the FRBM framework; sadly, those are swept under the carpet.
Another argument in support of range is what some experts describe as reinforcing “counter-cyclical” objectives. Put simply, when the economy is on a downswing, then the Government needs to undertake major investment to rein in the slide and put the economy back on the growth trajectory. It is primarily to tackle extraordinary situations such as during the current year that a 0.5 per cent cushion is permitted as per the 2018-19 amendment to the FRBM Act.
The incorporation of FD range does not offer anything better than what is already there in the FRBM law, i.e. fixed number FD target plus escape clause, unless it is the intent of mandarins in the Finance Ministry to have both, namely range as well as the escape clause. That would be disingenuous. The 15th FC should refrain from going for a range-bound FD. The extant arrangement should continue with suitable increase in the permissible breach under the escape clause. All hidden slippages such as DSPs and EBRs should be prohibited.
(The writer is a policy analyst)
THE NEW BANKING IS MORE DEADLY THAN COVID 19: More Bank financial frauds, Money laundering, Regime Change, Riots, Racial Trade Wars.
Year 2020 has been a life changing year in more ways than one for all people and this planet. The happier joys of life and family have been chocked by the many dangerously dumb western politicians and their man-made “Pandemic” virus fear fuelled by their lying medical monsters and their government funded mainstream media news. The brainwashed public carry on believing the lies and following the stupid new laws thus destroying their next generation. The 2021 western banking virus is more deadly and must be stopped from infecting the Eastern World. As there is little trade export and sales many western banks/financial institutes and companies are brazenly breaking international laws. Many of them are using Indian people, banks and companies to assist them in money laundering, financial accounting frauds. The British bank HSBC has a history of this and still continues to break many laws in Hong Kong and across the World.
The British Bank HSBC’s shares fell to their lowest level in 25 years as the bank faced allegations of money laundering and concerns about its ability to expand in Asia amid the fallout from the Covid-19 pandemic. The London-based bank’s Hong Kong shares slid 5.33 per cent to 29.30 Hong Kong dollars at market close on Monday and plunged 6.23 per cent in London to £285.05 at 11.22am UK time. The stock has nearly halved since the start of the year. The British bank is among five global financial institutions named in a report by the International Consortium of Investigative Journalists that defied money laundering crackdowns by moving “staggering sums of illicit cash” in transactions that were flagged as suspicious.
This happened even after US authorities fined the institution for “earlier failures to stem flows of dirty money”, the ICIJ report said. The leaked documents, which are known as the FinCen Files, include more than 2,100 suspicious activity reports filed by banks and other financial firms with the US Department of Treasury’s Financial Crimes Enforcement Network. The documents identified more than $2 trillion (Dh7.34tn) in transactions between 1999 and 2017 that were flagged by financial institutions’ internal compliance officers as possible money laundering or other criminal activity, the report said. The top two banks are Deutsche Bank, which disclosed $1.3tn of suspicious money in the files, and JPMorgan, which disclosed $514 billion, the analysis found. Other lenders include Standard Chartered and Bank of New York Mellon, the report found, with HSBC disclosing $4.48bn in transactions.
The ICIJ report is another blow for HSBC, which is also a possible candidate for China’s “unreliable entity list” that looks to penalise firms, organisations or individuals that damage national security, according to the Communist Party’s Global Times newspaper. Last month, HSBC reported a 65 per cent drop in pre-tax profits to $4.3bn for the first half of the year, a much steeper fall than analysts expected with the bank's chief executive blaming a series of triggers. While HSBC is based in London, more than half of its profits come from Hong Kong. Europe's biggest bank also set aside between $8bn to $13bn this year for bad loans as it expects more people and businesses to default on repayments amid the fallout from the Covid-19 outbreak.
HSBC Bank 2018 tax fraud probe in India
The HSBC had acknowledged the fact that the regulatory and law enforcement agencies of various countries contacted the bank for information on persons and entities named in the leaked 'Panama Papers' which included hundreds of Indians who had indulged in alleged tax violations through offshore tax havens with the help of Panamanian law firm Mossack Fonseca. HSBC had set aside over Rs 5,000 crore ($773 million) as a provision for various tax and money laundering-related matters.
Here are all the key points that were related to the Indian investigation against HSBC:
- The Indian tax authority-initiated prosecution against HSBC Swiss Private Bank and an HSBC company in Dubai for allegedly abetting tax evasion of four Indian families.
- According to the report, the Indian tax authority had claimed they had sufficient evidence to initiate probe.
- The HSBC annual report said Indian tax authorities in February 2015 had issued summons and request for information to an HSBC company in India.
- Also, two offices of the Indian tax authority sent notices to HSBC companies in August 2015 and November 2015 on the matter.
HSBC's disclosure on the Indian tax authority's investigation came after the then Finance Minister Arun Jaitley informed the Parliament earlier that month that the Government detected over Rs 16,200 crore in black money after investigations on global leaks about Indians stashing funds abroad. In the written reply to the Rajya Sabha, Jaitley had also said about Rs 8,200 crore (including protective assessment of income of Rs 1,497 crore) of undisclosed income was brought to tax in the last two years on account of deposits made in unreported offshore accounts in HSBC Bank but this is not just limited to India. Various tax administrations, regulatory and law enforcement authorities around the world, including in the US, France, Belgium, Argentina, are conducting investigations and reviews of HSBC Swiss Private Bank and other HSBC companies in connection with allegations of tax evasion or tax fraud, money laundering and unlawful cross border banking solicitation. Some Indian banks/financial institutes are being assisted by NRIs/PIOs and the Indian overseas branches who have closer relations with the many corrupt western banks/financial institutes. Nirav Modi (PNB Scam), Vijay Mallaya (Kingfisher Airlines), Rana Kapoor (Yes Bank and DHFL Scam) would NEVER have had the opportunity to commit the financial crimes against Indian government if the western banks/financial institutes had not completed the wire transfers and formation of offshore companies.
Instrumental in many business and banking trades from India to the UK/Europe and offshore locations is The Hinduja Group of companies in the UK. In 2000 Corruption charges were filed in Delhi, India against the three brothers in connection with one of India’s biggest and longest running arms sales scandals, the 1986 Bofars affair. A $1.4 bn Indian government (Congress Party) contract to purchase artillery guns from the Swedish manufacturer Bofors. The Indian investigators based the charges on bank documents that a Swiss court released to India between February 1997 and December 2000. The Hindujas failed in an appeal to the Swiss courts to have the release of the documents blocked. The Hinduja brothers were acquitted of all charges in the Bofors affair in May 2005. Delhi’s High Court threw out all charges against Srichand, Gopichand and Prakash Hinduja due to a lack of evidence. It is very interesting that Indian government failed to appeal against the high court judgement in the supreme court despite clear evidence due to the lack of Global expertise and offshore banking structures knowledge. One key point being that Hinduja Bank Ltd was founded as a finance company in 1978 and became a Swiss regulated bank in 1994. The Hinduja Bank has its headquarters in Geneva and has a developed network in Switzerland including offices in Zurich, Lugano, St Margrethen, and Basel. Hinduja family have the backing of the IndusInd Bank which in May 2020 is planning to raise over $500 million to shore up its balance sheet as it grapples with bad loans. The bank registered a 16% year-on-year drop in net profit at INR30.1bn ($401m), which lead to a 56% rise in bad loan provisions to INR244bn ($3.24bn). Its stock prices also plunged to more than 70% since the beginning of 2020.
The bank, which is backed by Hinduja Group, is in talks with three strategic investors, including Japan’s Nippon Life for the fundraising. According to sources, Nippon Life needs a bancassurance partner to boost its distribution network of insurance products in India. It also intends to bag huge corporate treasury cash for its asset management business in the country. However, the preliminary talks with Nippon may or may not result in a successful transaction. The other potential strategic investors include Canada Pension Plan Investment Board (CPPIB), and Singapore’s GIC. All the investors were warned in advance about the shady past of the Hinduja Group.
There is much more to this which will be re-investigated in the coming months as well as many new investigations and tracking of Indian banks/financial institutions and NRI/PIO companies who are on the scanner of The WHS Group’s “INDIA FIT” (Financial Intelligence Troops) legal case databases. In 2021 “INDIA FIT” is the new healthy cure and right medicine shots that bring back more business trade sales confidence and FDIs into good clean healthy Indian companies that we verify/certify a good clean bill of health to so that scams/frauds are eliminated and no international laws get broken.
What are FinCEN files?
FinCEN is the US Financial Crimes Enforcement Network at the US Treasury who combat financial crime. They look into grievances and concerns about transactions made in US dollars need to be sent to FinCEN, even if they took place outside the US. The FinCEN files comprise 2,657 documents, including 2,121 suspicious activity reports, most of which were files that banks sent to the US authorities between 2000 and 2017. They raise concerns about what their clients might be doing. These documents, known as Suspicious Activity Reports or SARs, are some of the international banking system's most closely guarded secrets. They reflect views by watchdogs within banks, known as compliance officers, reporting past transactions that bore hallmarks of financial crime, or that involved clients with high-risk profiles or past run-ins with the law. A bank must fill in one of these reports if it is worried one of its clients might be up to no good. The report is sent to the authorities.
India, IPL links
Indian entities figuring in these documents include “a jailed art and antique smuggler; a global diamond firm owned by Indian-born citizens named in several offshore leaks; a premier healthcare and hospitality group; a bankrupt steel firm; a luxury car dealer who allegedly duped several high net worth individuals; a multinational Indian conglomerate; a sponsor of the Indian Premier League (IPL) team; an alleged hawala dealer”. A key finding is that in many cases, the very fact that individuals and companies are being probed by Indian agencies is part of the SAR flagged to FinCEN.
In a majority of cases, domestic branches of Indian banks have been utilised to receive or remit the funds; in some cases, bank accounts with foreign branches of Indian banks, too, have been used to carry out these transactions. As many as 44 Indian banks figure in the FinCEN Files primarily because they are “correspondent banks” to the foreign banks which have filed these SARs. Key in this list are Punjab National Bank, Kotak Mahindra, HDFC Bank, Canara Bank, IndusInd Bank and Bank of Baroda, among others.
There are a total of 3,201 transactions which have been listed as "suspicious" in nature and these add to $1.53 billion—but this is only those where complete Indian addresses linked to different entities (senders, banks, beneficiaries) are available. These are attached as spreadsheets in each SAR. Over and above, are thousands of other transactions, also linked to Indian entities where senders or beneficiaries have addresses in foreign jurisdictions, the report added. What was more revealing is that the Indian Premier League (IPL) has also landed on the US financial regulator’s radar in a network of transactions involving a leading US bank, a little-known UK company, a Kolkata-based sponsor of an IPL team, and allegations of fraud and forgery.
In 2013, KPH Dream Cricket, which runs Kings XI Punjab, went to court against team sponsor NVD Solar International Ltd for “cheating and duping” them of $3 million in sponsorship fee. The SAR, filed by , reportedly offers a clue to what went wrong. In 2013, San Francisco-based Wells Fargo Bank had received “a $2,975,460 SBLC (Standby Letter of Credit) from Deutsche Bank AG in London” with KPH Dream Cricket as the beneficiary. The SBLC for nearly $3 million was sought by Aerocom UK Ltd, an air tubes manufacturer, with no apparent links to the team or the sponsor. The SBLC said that “in case of failure of the obligator, NVD Solar International Ltd of Dhaka, Bangladesh, was to pay the amount due as per the terms of the contract”.
However, according to the SAR filed by Wells Fargo, the SBLC turned out to be “fraudulent” and was “declined”. Wells Fargo’s SBLC unit found that none of the companies named in the request—applicant Aerocom UK, beneficiary KPH Dream Cricket, warrantor NVD Solar — were on the bank’s customer rolls. It concluded that the “SBLC is believed to be bogus, as a search of Wells Fargo electronic messaging system does not show receipt of this transaction”, according to the SAR. An investigation by Wells Fargo’s Trade Finance Investigations unit also found out that the transaction also involved a forged signature. The IPL case is just one among the many transactions with India connections that were red-flagged in a SAR.
According to the leaks, Indian banks received $482,181,226 from outside the country and transferred from India $406,278,962. These transactions were red flagged to the US authorities. So far, the Indian banks named by ICJI for dubious transactions include State Bank of India, Punjab National Bank, Union Bank of India, HDFC Bank, Indusind Bank, Axis Bank, ICICI Bank, Kotak Mahindra Bank, Yes Bank, Indian Overseas Bank, Canara Bank, Bank of Maharashtra, Karur Vysya Bank, Tamilnad Mercantile Bank, Standard Chartered Bank (India operations), Bank of Baroda, Bank of India, Allahabad Bank, Indian Overseas Bank, Indian Bank, Deutsche Bank (India operations), UCO Bank, Karnataka Bank, RBS, Andhra Bank, and Vijaya Bank.
The present Indian government and people of India have been robbed by many of their own Indian people who were assisted by many on the Little British Island BK (Broken Kingdom) and their offshore bank locations. The World Homeland Security (WHS) Group of companies has undertaken financial investigations of misconduct, bribery and corruption, as well as assessments of financial transactions, accounting irregularities, and regulatory and compliance issues on behalf of publicly and closely held companies, private equity firms, government agencies, municipalities, NGOs and high net worth individuals. India and China must avoid conflict, making peace is the best path forward. Western warmongers need another war so that they can “Divide and Rule” while stealing more Eastern Countries resources, create regime change riots and shatter the Eastern Countries societies with terrorism/false flag attacks. India and China Govts must amicably make land border decisions with lawful agreements while increasing more peaceful trade business ties so that it prospers people from both countries.
Why India’s financial system is vulnerable to hacks?
India's financial systems are extremely vulnerable, because they still rely on international banking networks like Swift to make transactions. International gateways are open vectors of attack for India. Last year hackers were able to siphon off 900m rupees ($12m; £9.7m) from Cosmos bank in the western city of Pune through a malware attack on one of its data suppliers. India is among the top three countries in the world for phishing and malware attacks. Although this comes down to the sheer size of India's digital population, the population of France is added every month to the country's internet: it is a big concern because many first-time internet users are being pushed to use digital payments.
In November 2016, for instance, when the government suddenly removed 80% of the country's cash from the economy by saying that 1,000 and 500 rupee notes would no longer be valid, Prime Minister Narendra Modi heavily promoted digital payments as an alternative. Mobile payment platforms both (Paytm) and (GooglePay) have since become a massive industry in India. A report by Credit-Suisse estimated that mobile payments in India would become a $1tn market by 2023. Credit and debit card payments are also popular, with an estimated 900m card operational in India today. Many of the newest entrants to India's internet more than half the 600 million-odd total users are from the middle or bottom of the pyramid. This means that very often, their digital literacy is low, or they are migrant labourers working in states where they are not familiar with the language hence, they are very vulnerable to fraud. And secondly, there is inadequate reporting of fraud by banks, which means sometimes consumers are not even aware of what has happened.
What kind of fraud is happening?
Financial fraud in India takes many different forms. Some involve hackers fixing skimmers and keyboard cameras to ATMs, which duplicate the card details of unsuspecting users. Others involve calling people up and tricking them into handing over information. The problem is that in a digital transaction lines are blurred and confusing. In the real world there is a clear distinction between giving and receiving. But on a mobile payment platform, this is not always clear. For instance, someone trying to sell a table online might be called by someone posing as a prospective buyer, offering to make an online payment. If that person says that he or she has made a payment and tells you that you will get a code via text message to confirm the transaction, many users would think nothing of it, even if they are asked to tell that person the code. The next thing they know is that the money has been deducted from their account.
What improvements can be made?
One problem is that the systems themselves are not secure or transparent enough. In the Cosmos fraud for instance, the software was not able to throw up red flags when so many transactions were compromised. And by the time the fraud was discovered, a huge sum of money had been lost. Furthermore, a lack of standardisation also makes transactions confusing, especially for first-time users. ATMs for instance, come in many different forms and each payment app in the country has a different interface. In India, due to the lack of computer software education and correct security procedures there is a human problem. People lack even basic awareness of the dangers, leaving both themselves and sometimes entire systems at risk.
What is the government's role?
Given the rate of India's internet growth, it is not possible to rely on just education alone. It's not possible for everyone to keep up with the sophisticated methods of hackers, especially when they are constantly changing tactics and methods. So, the onus has to be on regulators and payment firms to protect users. The other problem is that communication between the various cyber-security organisations is just not fast enough. The Computer Emergency Response Team (Cert), are sometimes too slow to respond to reported threats. But India is already aware of this. The country is formulating a national cyber-security policy for 2020 -2021 and officials have identified six critical areas where policy needs to be where special attention is needed. Finance security is one of these areas. It is only then that India will be able to effectively respond to the risks that come with moving to a largely cashless economy.
Even before the pandemic: the western economies and majority of people were already crumbling into deeper debts, bankruptcies, lost jobs/homes and slow trade. The present British regime is breaking international laws on the withdrawal agreement which was written agreed and signed by Clown UK PM BoJo as their Brexit virus finally gets cured. Stop your investments, banking and credit loans to UK/British companies as you will suffer bigger losses in 2021 and beyond as their Brexit cure fails to work as do their public fail to work (No new Jobs) because they were stupid enough to vote and elect their clown prince BoJo and his highly useless mindless ministers who enjoy breaking laws even when the little Island is in lockdown mode.
Many western politicians, companies, Banks/financial institutes in the West will increase more bank financial frauds, money laundering, regime change, Riots, Western False Flag terrorism acts in the East, More Plandemic Virus BS lies and more Racial Trade Wars. More peace can prevail if good people irrespective of one’s country, culture or religious beliefs learn to respect more real truths without being swayed and misled into more darkness which will dim and destroy your children’s future peaceful happy lives on this Earth if you do not peacefully unite now. It is not hard to make a decision when you know what your “True” Values are.
Writer is the Global Chairman Group President of The World Homeland Security/Smartechno Group of Companies. www.worldhomelandsecurity.one
There’s no pressing need for a firm hit by the crisis to rush to banks for relief. To enjoy the fruits when the going is good and come to the bank or Govt for help when in crisis is unacceptable
On March 27 the Reserve Bank of India (RBI) Governor, Shaktikanta Das, announced a comprehensive action plan to resuscitate the economy devastated by the Coronavirus. Apart from measures to increase availability of credit and reduction in the cost of capital, the plan sought to ease the stress of loan repayments on businesses and individuals. Among others, this included a three-month moratorium on payment of instalments in respect of all term loans outstanding on March 31. On May 22, Das announced extension of the moratorium for three months till August 31. To ease the burden of payment on those who availed of working capital facilities, the Governor allowed them to convert accumulated interest for the deferment period into a funded interest term loan (FITL) which can be paid by March 31, 2021.
The RBI eased asset classification norms for all accounts coming under moratorium, too. These accounts will be treated as non-performing assets (NPA) from 270 days overdue instead of 90 days overdue as per extant rule. It has also extended the 210-day resolution period for all large stressed accounts under its June 7, 2019 circular (on its expiry, if banks are not ready with a resolution plan, the Insolvency and Bankruptcy Code [IBC]comes into play) by a further 180 days. To address the situation after the moratorium ends, on August 6, the RBI announced a scheme for one-time restructuring of the debt for large companies, besides extending till March 31, an existing restructuring scheme for micro, small and medium enterprises (MSME) with relaxed norms. It also set up an expert committee under KV Kamath to recommend the required financial parameters, along with the sector-specific benchmarks for this special window.
Meanwhile, one Gajendra Sharma had filed a Public Interest Litigation (PIL) in the Supreme Court (SC) demanding waiver on interest charged by a private bank, citing relief given by the RBI on payment of Equated Monthly Installments (EMIs) during March and August 31, due to the pandemic. During the last three months or so, the SC has heard the matter thrice. It has made the following observations: On June 4 it said, “On one hand, you are granting moratorium (on loans) but continuing with interest. It is more detrimental.” On June 17 it observed, “There is no merit in burdening customers, who have opted for the RBI-approved loan moratorium, with additional interest. Once you fix a moratorium it should serve the purpose desired. We see no merit in charging interest on interest.”
On September 10, 2020, it said, “We are keen to waive interest on interest” for borrowers who availed the moratorium and asked the Government and the RBI to come up with a “concrete plan” with regard to the vexed issue. It posted the matter for hearing on September 28, when it is likely to give its final order.
From the above, it is abundantly clear that the SC does not want banks to charge interest on interest for the moratorium period. Whether or not this will get reflected in its order, one can only wait and watch. Meanwhile, it may be worthwhile to look at the desirability or otherwise of such a move in particular, its impact on the viability and financial stability of the banking system.
At the outset, by granting moratorium to all and sundry, the RBI gave a signal that almost everyone would be devastated by the pandemic.
The SC has gone a step further by aligning itself with a plea that the banks should also not be charging “interest on unpaid interest amount during the moratorium period.” Such a sweeping and broad-based generalisation is totally divorced from the reality. No doubt, the Coronavirus has caused unprecedented damage but this can’t be pushed to a point of arguing that almost everyone has been incapacitated and hence unable to service the loans. After all, even during the lockdown, a number of activities, especially health related, all essential goods and services besides firms in several other sectors permitting work from home (WFH) continued their business. Look at the Gross Domestic Product (GDP). During April-June 2020 it was about 23 per cent less than during April-June 2019 but it was not reduced to zero.
Businesses which contributed to this GDP (about Rs 2,550,000 crore during April-June 2020) can’t be termed as not being in a position to service their loan. The proof of the pudding is in the eating. A large number of borrowers have not availed of the moratorium. For instance, in case of the State Bank of India (SBI), over 80 per cent of its retail borrowers did not avail of the moratorium for two out of the first three months (March-May) initially allowed by the RBI. Further, 90 per cent of such borrowers did not avail of the moratorium for one month. In other words, they continued to pay their EMI.
Yet, if in retrospect, the SC allows waiver of “interest on unpaid interest amount” for all and sundry, this will be unfair to and discriminate against such borrowers who decided not to avail of the moratorium and continued to service their loans. A business by nature has ups and downs. Every enterprise has a phase of buoyancy when it gets to reap extraordinary profit (for instance, in the automobile sector during 2017-18/2018-19). Why can’t the surplus or savings from those years be used as a buffer against the current setback? Alternatively, in future, say during 2022-23, when the pandemic impact will subside and the sectors start generating good profits, the surplus to be retained therefrom will provide adequate cushion to pay for current liabilities (including interest on interest).
The point in short is that there is no compelling need for a firm impacted by the crisis to rush to banks for relief. To enjoy the fruits when the going is good and come to the bank or Government for bail-out when in crisis is totally unacceptable. A bank does not run a charity. Its business model involves taking money from depositors in lieu of promising a fixed return (call it interest rate) which is added to the invested amount and returned to the depositor on maturity. The bank lends the funds thus collected to borrowers, viz. industries, businesses or individuals and so on and uses the interest earning to service its depositors (besides paying for its own “intermediation” expenses).
The bank is legally bound to honour its contractual obligation to the depositor i.e. it must return to him/her the principal amount plus accrued interest on the maturity/due date. Imagine a situation wherein a bank defers payment of the interest portion say by six months (because it is under stress for that long). Then it will necessarily have to pay “interest on the unpaid interest amount.”
The depositor won’t forego this just because the bank was under stress. This logic holds with equal force when it comes to the borrower discharging his/her liabilities to the bank. If the former delays payment of interest (courtesy, moratorium mandated by RBI) then it must pay “interest on unpaid interest amount” to the latter. Yet, if the top court forces banks to forego it, this will dent their ability to service the depositors. It will strike at the root of architecture of the financial system and pose a serious threat to the viability of bank.
Businesses can always approach banks for support by way of additional funding and negotiate for changes in the terms of payment. This is precisely what the RBI is facilitating by way of one-time restructuring scheme (as 26 sectors have been identified by the Kamath Committee for a customised package). But to expect banks to bear a portion of the cost in a broadside and high-handed manner is an abhorrent idea.
On the other hand, to expect the Government to pick up the cost tag would also be illogical and unfair. Apart from Covid-related expenses on medical facilities and health infrastructure (besides increasing expenditure on defence in the current security environment), the Union’s scarce resources need to be preserved only for addressing basic needs of the poor whose survival depends on daily wages and who — unlike firms — had neither any savings from the past nor any hope of having any windfall gain in the future.
To conclude, if SC orders what it has alluded to, this will affect the viability of banks or further bloat fiscal deficit (in case, the Government foots the bill), thereby jeopardising the country’s macro-economic fundamentals. This should be avoided and businesses need to remain focussed on making best use of the RBI’s package. Even so, the most crucial requirement at this juncture is to “flatten” the Covid curve at the fastest pace so that economic activities get back to normal. Sans this, any relief, howsoever generous, won’t be of much help.
(The writer is a New Delhi-based policy analyst)
Life Insurance Corporation of India (LIC) entered 64th year of its incorporation on Sunday. It has played a significant role in spreading the message of life insurance among the masses and mobilisation of people’s money for their welfare.
In this journey, LIC has crossed many milestones and has set good performance records in various aspects of life insurance business. In its 63 years of existence, it has grown in terms of its customer base, agency network, branch office network, new business premium.
LIC has been embraced technology from the nascent stage. It is continuing its journey by reaping the benefits of technology to become customer-centric, to improve pricing and to create operational efficiencies. It has a strong online presence and has provided digital platform for new business and servicing operations to both internal and external customers.
The focus of the corporation is to enhance the e-presence and e-delivery capabilities and to transform existing enterprise IT systems in sync with the expectation of the users. It is also issuing e-policy along with physical policy document.
LIC has revamped its portal system with latest technological platforms to enhance digital experience and provide online services. Various options are available — product information, downloading plan brochures , premium calculator, apply for policy, LIC office locator, policy self servicing options like Policy Information, online premium payments, advance premium payments, revivals, online loan request, loan repayments, ULIP statement, grievance redressal etc.
It also offers life insurance protection under group policies to people below poverty line at subsidised rates under social security group schemes like Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) and Aam Admi Bima Yojana (AABY). These schemes provide life insurance protection to the persons living below poverty line and marginally above poverty line.
LIC won 25 Awards in the year 2018-19 including golden peacock award for National Training and Readers Digest awards.
Writer & Courtesy: The Pioneer
With a few simple tweaks, rural banking can be made both viable and result-oriented. But for this, political will is needed
The Government is planning a mega revamp of the regional rural banks (RRBs) and that includes consolidation for better operational efficiencies. In the budget 2019-20, it allocated Rs 236 crore towards the capitalisation of RRBs. There are 56 operational RRBs and the roadmap is to bring them down to 38 or below. There were 196 RRBs after the concept was originally introduced in 1975, to ensure access of affordable credit to the rural population.
RRBs were set up to eliminate other unorganised financial institutions like money lenders and supplement the efforts of co-operative banks. Although RRBs have performed commendably, in recent years, they have lost sheen on account of their inability to preserve the low-cost model and raise capital. RRBs have not been able to attract bright talent. Poor leadership has retarded their mission and vision. Issues relating to governance, suitability of design of products and staff productivity continue to stifle their growth. At present, the Central Government holds half the stake in RRBs. Sponsor banks own 35 per cent and the rest 15 per cent is with the State Governments.
While the Government’s renewed rural focus is laudable, some important caveats must be in place. It is true that banks can play an important role in the financial transformation of low-income communities, but sustainability should never be overlooked. In their excitement to oblige their constituencies, politicians run financially amok and literally plunder banks for vote-banks. This was precisely the reason why India’s post-nationalisation mass banking programmes degenerated into populist agenda, which financially ruined the banks.
All these highlight how an unenlightened politician can play havoc with the financial systems. The entire execution lacked the soul of a genuine economic revolution because it was not conceived by grassroot agents but was assembled by starry-eyed mandarins, who had picked up bits and pieces about financial inclusion from pompous new-fangled and half-baked ideas generated at seminars and conferences. Cheap loans, followed with periodical waivers and write-offs, have been the hobby horse of eye-on-the-ball experts and lazy policy-makers.
The original banking concept, based on security-oriented lending, was broadened after the nationalisation of banks to a social banking concept based on purpose-oriented credit for development. This called for a shift from urban to rural-oriented lending. Social banking was conceptualised as “better the village, better the nation.” However, opening new branches in rural areas without proper expansion, planning and supervision of end use of credit, or creation of basic infrastructure facilities meant that branches remained mere flag-posts. It was a make-believe revolution that was to lead to a serious financial crisis in the years to come.
The Integrated Rural Development Programme (IRDP) is a grim reminder of how mechanically trying to meet targets can undermine the integrity of a social revolution to such an extent that a counter-revolution can be set into motion. Arguably, India’s worst-ever development scheme, the Integrated Rural Development Programme (IRDP), was intended to provide income-generating assets to the rural poor through the provision of cheap bank credit. Little support was provided for skill-formation, access to inputs, markets and necessary infrastructure.
In the case of cattle loans, for example, a majority of cattle owners reported that either they had sold off the animals bought with the loan or that those animals were dead. Cattle loans were financed without adequate attention to other details involved in cattle care: Fodder availability, veterinary infrastructure and marketing linkages for milk among others.
People erroneously came to believe that the State had all the answers to their problems. Governments, international financial institutions and non-governmental organisations (NGOs) threw vast amounts of money at credit-based solutions to rural poverty, particularly in the wake of the World Bank’s 1990 initiative to put poverty reduction at the head of its development priorities. Yet, those responsible for such transfers, had — and in many cases continue to have — only the haziest grasp of the unique demands and difficulties of rural banking.
Working for the poor does not mean indiscriminately thrusting money down their throats. Unfortunately, IRDP did precisely that. The programme did not attempt to ascertain whether the loan provided would lead to the creation of a viable long-term asset. Nor did it attempt to create the necessary forward and backward linkages to supply raw material or establish marketing linkages for the produce. Little information was collected on the intended beneficiary. The IRDP was principally an instrument for powerful local bosses to opportunistically distribute political largesse. The abiding legacy of the programme for India’s poor has been that millions have become bank defaulters through no fault of their own.
Today, the people so marked find it impossible to re-join the formal credit stream. The entire notion of economic revitalisation became a kind of code: It’s a formulation that isn’t taken literally and one that worked wonderfully well to bring all the anti-poverty players together at a time when the world’s energies were focussed on ending poverty. Juicy numbers are music to the ears of bosses. Numbers have been a great obsession with Indian planners in particular. Number of men and women sterilised, contraceptives circulated, wells dug, toilets constructed, villages screened for polio, TB or malaria, children enrolled in schools and saplings planted… there is no accountability for fudged figures. In fact, majority of the rewards are given to officers most adept at massaging figures. The game of numbers, without a concurrent focus on social performance and evaluation of quality of assets created, has been the bane of most credit programmes for poverty reduction and self-employment.
There are two basic pre-requisites of poverty eradication programmes. First, reorientation of agricultural relations so that the ownership of land is shared by a larger section of the people. Second, programmes for alleviating poverty cannot succeed in an economy plagued by corruption, inflation and inefficient bureaucracy.
A poverty eradication programme must mop up the surplus with the elite classes. These two pre-requisites call for strong political will to implement the much-needed structural reforms. Besides, the Government must aim at a strategy for the development of the social sector — the key component should be population control, universal primary education, family welfare and job creation, especially in rural areas. These and other aspects of poverty alleviation have not received any importance so far in our planning policy making.
During the massive banking expansion phase in the 1980s, opening a bank branch was made to look as casual as punching a flag post. It was impossible to locate a proper structure to house the bank. The existence of a toilet or a medical centre, a police post or a primary school in a village, as a precondition for a bank branch, was simply overlooked. In several cases where the expiry of Reserve Bank of India (RBI) licence for the opening of the bank branch approached without proper premises being identified, banks were housed in a temple or a local community centre, marked by a small banner and a photograph screened as evidence of the launch of the bank’s operations.
Rural branch expansion during that period may have accounted for substantial poverty reduction, largely through an increase in non-agricultural activities, which experienced higher returns than agriculture, and especially through an increase in unregistered or informal manufacturing activities. But there was a significant downside; commercial banks incurred large losses on account of subsidised interest rates and high loan losses — indicating potential longer-term damage to the credit culture.
Rural finance programmes should have substantial inputs from rural sociology as part of the training kit for rural managers. Rural Banking requires greater insight into rural sociology than banking practices as far as finance is concerned. A basic knowledge is adequate to handle these simple credit proposals. It is only in case of high-tech agriculture that technical skills and expertise are required. With a few simple tweaks, social banking can be made both viable and result-oriented. We should not commit the mistake of throwing the baby out with the bathwater.
(The writer is member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)
Writer: Moin Qazi
Courtesy: The Pioneer
India does not even have a data protection policy. This is something that our policy-makers need to look forward to instead of batting for the right to be forgotten
As a concept, the Right To Be Forgotten (RTBF) evolved in the 1990s in western Europe and subsequently developed as part of human rights jurisprudence. France became a pioneer of this issue when it recognised the “right to oblivion.” This right was available to all convicted individuals, who had served their prison sentences. Often, in cases like these, social stigma is attached to individuals even after they have served their punishments. In general, people had ready access to the criminal history of such cases and the actual commission of a crime would perpetuate stigma. As a result, individuals suffered regardless of the geographical location.
The RTBF is reflected in Article 17 of the General Data Protection Regulation (GDPR) of the European Union (EU). The EU Parliament took nearly four years of preparation and debate to approve the GDPR in 2016, which was finally enforced on May 25, 2018. The GDPR framework replaced an outdated Data Protection directive from 1995. It contains provisions that require businesses to protect their personal data as well as privacy of the EU citizens for transactions that occur within the member states of the EU. It also regulates the exportation of personal data outside its boundaries.
In the Indian context, RTBF is envisaged in the Justice BN Srikrishna Committee report (2018) on Data Protection Bill. The report held that the “rights of the citizens have to be protected, the responsibilities of the States have to be defined but data protection can’t come at the cost of trade and industry.” Thus, there is also a strong possibility of this right making its way into the Indian legislature. The rationale of the Supreme Court of India in the Puttaswamy judgement has upheld other fundamental rights securing individual liberty in the Constitution. In addition, individual dignity is one of the basis for right to privacy. Privacy itself was held to have a negative impact (the right to be let alone) and a positive one (the right to self-development).
The sphere of privacy includes the right to protect one’s identity. This right recognises the fact that all information about a person is fundamentally their own and he/she is free to communicate or retain it for himself/herself. This core of informational privacy is, thus, a right to autonomy and self-determination with respect to one’s personal data. Such a notion has also been echoed in the Srikrishna Committee report (2018) on data protection.
Further, it believes that a free and fair digital economy, one that empowers the citizens, can only grow on the foundation of individual autonomy, working towards maximising the common good. However, the report manifests an approach to balance free speech with RTBF. Many have pointed out that the Bill doesn’t lay down the golden principle of allowing individuals to be true owners of their own data. The report further includes a balancing test with five criteria for the judiciary to weigh the freedom of speech and expression with RTBF.
RTBF is sometimes referred to as the Right to Erasure (RTE). As it is commonly misunderstood, RTBF is not synonymous to the RTE. It is rather an extension of it. The underlying principle of RTE is that when there is no compelling reason for the subject’s data to be processed, he/she can request the data controller to erase/remove their personal data, stop any further distribution of their personal data or potentially prevent third parties from processing their personal data.
RTE was applied to only proprietary databases. For example, if one wishes to unsubscribe from a
magazine, he/she can ask the concerned firm to delete all information that they possess of him/her. RTE did not apply to search databases as RTBF does. Hence, RTBF is actually an extension of the RTE.
The debate around this has gained a lot of traction in India after the Supreme Court recognised Right to Privacy in its landmark case of Justice KS Puttaswamy (Retd) and Anr vs Union Of India and Others. The apex court held that right to privacy is part of the right to life and personal liberty as guaranteed under Article 21 of the Indian Constitution. A nine-judge Bench held that “life and personal liberty are inalienable rights. These are rights which are inseparable from a dignified human existence. The dignity of the individual, equality between human beings and the quest for liberty are the foundational pillars of the Indian Constitution…” The verdict has given impetus to demands for recognition for other fourth generation human rights in India, like the right to be forgotten and RTE.
The right to privacy guarantees liberty in private spaces, electronic or otherwise. This means that the information, which is not in the public domain, is protected from coming into the public domain. Right to be forgotten, on the other hand, involves information that is already in the public domain and is required to be delinked from the individual, who has claimed the right to be forgotten.
Further, the RTE operates in an even niche area, where an individual can target a specific database and claim a RTE against it for the removal of information which concerns them. But the fourth-generation communication rights, like the right to be forgotten, come with their own set of flaws.
First, one of the major problems is that the guarantee of the right vests with only a few individual corporations. Take the example of Google. As per Google’s Transparency report, it can remove only 41 per cent of the URLs against which some issue was raised. This means that the authoritative framework for implementing such a right now vests with a corporation and it is performing an adjudicatory function while deciding to accede to a request of removal. This is something which the Indian legal system does not envisage; wherein adjudicatory role is an essential state function.
Second, there is a concern that accused criminals can wipe out valuable evidence while their guilt is under adjudication. This can turn out to be an implementation nightmare for security agencies, especially those who are collaborating on international crimes and possibly terrorism.
Third, the sheer reach of the internet make a case for something, like the right to be forgotten absolutely impractical. If there is an adjudicatory order, for instance against Google, the information, which a claimant is seeking to protect, is not necessarily saved by such a request. This simply because Google is not the sole repository of that information. Details may be available through other search engines and may still be hosted as it is a primary website. Hence, it is highly problematic to put such a right in motion. Regardless to mention, it also involves significant expenditure to bring it into force.
Fourth, India does not even have a data protection policy. This is something that our policy-makers need to look forward to instead of batting for the right to be forgotten. Because in the absence of such a system, multinational corporations, which practically administer and govern the internet, are beyond the jurisdiction of the Indian law and courts. Hence, even a guarantee will be meaningless if the decisions of our courts are not respected/recognised.
(Raghav Pandey is an Assistant Professor of Law and Anoushka Mehta is a student of Law at the Maharashtra National Law University, Mumbai)
Writer: Raghav pandey/Anoushka mehta
Courtesy: The Pioneer
The Supreme Court has directed the Reserve Bank of India to disclose the names of wilful loan defaulters in RTI requests
With the Supreme Court making it clear that the Reserve Bank of India (RBI) must heed Right To Information (RTI) requests for its Annual Inspection Reports (AIR), which would reveal the names of those who have wilfully defaulted on loans, it seems we have taken a crucial step in ensuring financial transparency. While the RBI asserted that this would imperil banking secrecy laws, its argument was dismissed by Justices Nageswara Rao and MR Shah with some exceptions. They clarified that the statements of the bank, reports of the inspections and information related to the business obtained by it does not, in fact, fall under the pretext of confidence or trust. However, the question remains about whether naming and shaming will do any good.
One potential prospect is that many of those, who are afraid that their names will be revealed once the Supreme Court order is implemented, will make an offer to pay up to keep their good name. There is no doubt that there are a large number of people who owe money to the Indian banking system and have the ability to pay, but often, sometimes in connivance with bank officials, as happened with Nirav Modi and Punjab National Bank, they do not pay back, knowing full well that they will not get prosecuted. However, many ‘wilful’ defaulters are often individuals who have not quite bankrupted themselves but have failed in their business ventures. In that ambiguity, there are some aspects of privacy that are also violated, and some modifications might be necessary in the classification of wilful and ‘non-wilful’ defaulters. Then again, naming and shaming people who break the law is possibly one of the only ways to get them to repent. Unlike the Panama Papers, this data, once released, will have perfect provenance and that will mean that many of the excuses that people make when caught will be just that, excuses. There is the possibility of another major risk. Much like the hundred plus individuals, who have run away from India, some even acquiring foreign citizenship using their ill-gotten gains, will many more take pre-emptive flights out of the country? Will the fear of knowing that they might be exposed make several hundred rich fraudsters run away from Indian banks and the law? However, this is a risk that we must take, considering some countries like the United Kingdom, have opened their doors willingly to financial fraudsters. Yet other nations are very strict with such individuals and extradite them promptly. Clever fraudsters tend to hide in nations where they know their chances of prosecution are limited. They are the worst type of criminals, knowingly not paying their dues and, thus, making life harder for everyone else who pay back their loans for homes, cars and everything else properly. As the saying goes, the hands of the law are very long. But those hands should know who to catch. Lest there be any objections, remember that the banks’ total non-performing assets amounted to Rs 11.2 trillion in FY18.
Writer & Courtesy: The Pioneer
Financial access alone is not enough to change the economic landscape of the country. We have to stimulate productivity, raise living standards, unleash entrepreneurial energy and reduce inequality
India has grown into a global powerhouse and while its economy is soaring, the picture on the ground is still quite grim, with the green shoots we see being only a patch of the overall landscape. Most Indians are hapless victims of inequity. India is one country where intense poverty abounds in the shadow of immense wealth.
The Indian economy is projected to be the fastest growing major economy in the world in 2018-19 and 2019-20, ahead of China, according to the International Monetary Fund (IMF). Per capita national income rose from Rs 86,647 in 2014-15 to Rs 1,12,835 in 2017-18. Furthermore, improved telecommunications, seamlessly connected global markets, universalisation of information through Internet and innovations in the financial ecosystem have all opened up opportunities for the common man like never before. It is, therefore, imperative that lack of demand and supply of financial services — to all levels of society — do not act as an impediment to the country’s growth.
Inequality and exclusion are two of the most pressing challenges facing the world today. In recent years, policy-makers have realised that development will be uneven and not wholesome if we do not address the problem of exclusion in a big way. Inclusive growth is necessary to ensure that the benefits of a growing economy extend to all segments of society.
Access to and integration of every individual into the formal economy by providing opportunities to use his/her potential to improve upon their well-being is essential for the building of a prosperous and stable economy. Inclusive growth is widely recognised as having four mutually supporting pillars — an employment-led growth strategy, financial inclusion, investment in human development priorities and high-impact multi-dimensional interventions (win-win strategies).
It is now accepted wisdom that a key ingredient of inclusive growth is financial inclusion. Inclusive financial systems have potentially transformative power to accelerate development gains. They provide individuals and businesses with greater access to resources to meet their financial needs such as investment in education and housing, capitalising on business opportunities, saving for retirement and coping with various economic shocks.
Like all other rights, citizens have the right to participate in the economy. The Consultative Group to Assist the Poor (CGAP), the development arm of the World Bank, puts it well: “Ensuring the financial system is inclusive is paramount in the process of creating a more inclusive, equal and peaceful society.”
For the millions of individuals who are in the lower deciles of the economic pyramid, lack of access to financial services is extremely difficult, expensive and harrowing. It constrains their ability to plan for their family’s future and traps households in cycles of poverty. More broadly, it limits the economic growth potential of a country. People need to protect themselves against hardship and invest in their futures to cope with risks such as a job loss or crop failure — all of this can push families into destitution. Many poor people around the world lack access to financial services that can serve many of these functions such as bank accounts. Instead, they rely on cash, which is not only unsafe but hard to manage.
Financial inclusion, in its broader market conceptualisation, is the belief that people, including the very poor and marginal, should gain access and be able to regularly use these services — an idea that the World Bank promotes as part of building inclusive economies, financial institutions, fintech companies and mobile operators and others pursue for evidently more self-serving reasons. Having an account isn’t the angle — it’s using the account to achieve development goals, to save, to invest in business and educational opportunities and to build financial resilience.
The objective of financial inclusion is a task that independent India has tried out in different forms over the decades but has not been able to get it quite right. Initiatives include the cooperative movement, followed by priority sector lending, lead bank schemes, service area approach, creation of National Bank for Agriculture and Rural Development and Small Industries Development Bank of India, introduction of Regional Rural Banks (RRBs), Local Area Banks (LABs) microfinance, kisan credit cards, business correspondence and finally, Pradhan Mantri Jan Dhan Yojana.
All these initiatives have been supply-driven — delivery of banking services to the poor people, if need be, at their doorstep. However, they have not been able to achieve the goals with which they are designed and mandated. Most of them were based on a misconceived premise and assumption. One important lesson they have offered is that the availability of finance is a necessary but not a sufficient condition for poverty reduction. It is certainly not an end in itself.
In this race to financial inclusion, we will be missing the mark if we believe that financial inclusion will by itself eliminate poverty. Financial literacy, access to financial tools and economic empowerment underpin the development of healthy and stable states. But it needs to be complemented with a host of other services. Financial services alone cannot vault the poor out of poverty. They can enable economic enfranchisement but cannot solve social exclusion, which has to be addressed by tackling the entire combination of problems. The issues include: Unemployment, discrimination, poor skills, low incomes and poor housing. One of the main reasons that the excluded populations cite for not having a financial account is that they simply don’t have enough money to open and use an account.
We need to remind ourselves of the memorable poser of Dudley Seers, first president of the prestigious European Association of Development Institutes (EADI), on development: “The questions to ask about a country’s development are: What has been happening to poverty? What has been happening to unemployment? What has been happening to inequality?” Credit is a powerful tool if it is used effectively when it is made available to the credit-worthy among the economically active poor participating in at least a partial cash economy — people with the ability to use loans and the willingness to repay them. But other tools are required for the poor, who have prior needs, such as food, shelter, medicine, skills training and employment.
For development to be wholesome, it must cover all basic facets of individual or society’s well-being: Health, education, housing and employment. The well-known economist VKR Varadaraja Rao underlined that integrated development is not done in isolation through the project approach or even the programme approach but is integrated to take account of their mutual interaction and their linkages forward or backward, temporal or spatial, friendly or hostile, with a view to achieving the total result, which is universalisation of health and enrichment of the quality of life.
Since substantial public investments are being made to promote financial inclusion, convergence, inclusive collaboration and mutual reinforcement alone can ensure better resource utilisation. Plans and strategies that operate in exclusive silos lose out on the benefits of mutual synergy and convergence of the various development channels. Advocates of financial inclusion claim that financial services will reduce poverty and promote pro-poor development but critics believe that this is illusory and that it falsely prioritises finance over delivery of more important services. Financial services are presented as central to social and economic growth and development.
Inclusive finance requires us to break the vicious cycle where educational, financial and digital exclusion combine to create social exclusion and isolation. The obvious lesson is that financial access alone is not enough: There has to be money to put into the account. For this, we have to stimulate productivity, raise living standards, unleash entrepreneurial energy and reduce economic inequality.
Financial inclusion is actually a tool in a broader development toolbox but in certain conditions, it happens to be the most powerful tool. It will make the poor a little more resilient but it is not the answer on its own. It has all to do with how we are using it and how we are defining the outcomes. Access to credit is not enough to alleviate indigence. More than micro-loans, what the poor need are investments in health, education and the development of sustainable farm and non-farm related productive activities.
(The writer is Member, NITI Aayog’s National Committee on Financial Literacy and Inclusion for Women)
Writer: Moin Qazi
Courtesy: The Pioneer