Current
incident of Punjab & Maharashtra Cooperative (PMC) Bank failure has
once again shown the ugly face of Indian Banking System (IBS). It has shattered
the belief of lakhs of people who deposit their hard-earned money in the banks
to keep it safe and secure. But it has also unmasked that how the bank
regulators including RBI and NABARD, managements, internal auditors and
statutory auditors are unserious and keep their vigilant eyes closed.
ALICIA TUOVILA
in an article in Investopedia.com, defining Statutory Audit, states, “A
statutory audit is a legally required review of the accuracy of a company’s or
government’s financial statements and records. The purpose of a statutory audit
is to determine whether an organization provides a fair and accurate
representation of its financial position by examining information such as bank
balances, book keeping records, and financial transactions.”
There is a
saying “Saamp ko nahin, Saamp ki Maa ko mariye jo anginat Saamp paida karti hai.”
(Don’t kill the snake, but kill the mother of snakes which gives birth to
hundreds of snakes.)
Above
mentioned auditing and checking authorities, responsible for curbing the birth
of snakes in the IBS, should be kicked off with a hard hit. If they can’t even
notice or smell the internal health of the Banks during their off- site and
on-site inspection and audit period, then what kind of surveillance they are keeping?
PMC Bank, a
cooperative bank operating in seven states with 137 branches, having a deposit
of Rs. 11617 crores, a loan portfolio of Rs. 8383 crore, net profit of Rs.
99.69 crore and a declared NPA of mere 3.76% in its 31.03.2019 balance sheet.
What a glorious picture the bank was sprucing up! Then what were the reasons of
its sudden collapse? Keeping aside the rules ®ulations, distorting all
bars and codes, the bank had reportedly lent a major portion of its loan
portfolio nearly 70% of total advancement to a single entity HDIL, which gone bad.
RBI failed to identify the violation of rules by the PMC bank, why?
PMC bank
collapse is not the first incident in IBS, Neerav Modi & Mehul Choksi
caused an alleged fraud of Rs. 13570 crores to Punjab National Bank and Vijay
Mallya eloped after giving a jolt of Rs. 9000 crores.
During the
financial year 2018-19, 6801 fraud cases involving an amount of Rs. 71500 crores
have been detected in the Indian Banks and this shows only detected face, there
may be some higher jerks which are still waiting to see the light.
India Today on
September 8,2019 reports that during the first quarter (April to June) of this
fiscal year of 2019-20, frauds worth Rs. 32000 crores have rattled the 18
Public Sector Banks or Govt banks. An RTI answered by RBI reveals that 2480
fraud cases defrauding the amount of Rs. 31898.63 crore have been lime lighted. 38 % of the chunk
i.e. 1197 cases of fraud involving an
amount of Rs. 12012.77 crore relate to SBI alone. Allahabad Bank with 381 cases
and amount of Rs. 2855.46 crore got the second position and the Punjab National
Bank, despite having a deep wound of fraud of Rs. 13000 crores in February,
2018 by the big whale Neerav Modi, got the third position with a fraud of Rs
2526.55 crore during these three months of this year. Other Public sector banks
are also not far behind, they also play major role in keeping the fraud train running
with nearly the same speed.
What
safety to the public money in Indian Banks?
The BJP
government led by Prime Minister Narender Modi in 2016 enforced the public to
deposit their hard earned all life savings to the banks by imposing NOTE- BANDI,
which kept the earnings of the people on stake without making an arrangement to
secure and guarantee the entire deposit. Presently the deposits of a person up
to the maximum limit of Rs. one lakh in a bank are guaranteed by DICGC (Deposit
Insurance and Credit Guarantee Corporation) set up with a mission to contribute to financial stability by
securing public confidence in the banking system through provision of deposit
insurance, particularly for the benefit of the small depositors.
Banks
covered by Deposit Insurance Scheme are (I) All commercial banks
including the branches of foreign banks functioning in India, Local Area Banks
and Regional Rural Banks and (II) Co-operative Banks – All eligible
co-operative banks as defined in Section 2(g g) of the DICGC Act.
What RBI
states about the role of DICGC?
Reserve bank
of India under the head of frequently asked questions regarding the role of
DICGC states that in the event of a bank failure, DICGC protects bank deposits
that are payable in India.
The DICGC
insures all deposits such as savings, fixed, current, recurring, etc. except
the following types of deposits.
(i) Deposits of foreign Governments;(ii) Deposits
of Central/State Governments;
(iii)Inter-bank
deposits; (iv) Deposits of the State Land Development Banks with the State
co-operative bank;(v) Any amount due on account of any deposit received outside
India (vi) Any amount, which has been specifically exempted by the corporation
with the previous approval of Reserve Bank of India.
What is
the maximum deposit amount insured by the DICGC?
Each depositor
in a bank is insured up to a maximum of Rs.1,00,000 (Rupees One Lakh) for both
principal and interest amount held by him in the same capacity and same right
as on the date of liquidation/cancellation of bank’s licence or the date on which the scheme of
amalgamation/merger/reconstruction comes into force.
Never put
your all eggs in a single basket
The elderly
retired persons or the present working employees keep their funds in the banks
to give a security cover to their future life and the farmers and businessmen
also have their savings / sale proceeds or working funds in their accounts with
the banks for their day to day needs. Also, the government has made such harsh
rules & regulations which stop the public from keeping cash in their white pockets,
so the people are forced to keep money in banks. But when the money of the
public is not safe even in the government banks and no security cover from the
banks or the government has been provided to the depositors beyond Rs. One lakh
per bank (Not Per Branch), where the people should go? Such type of
restrictions and unsecure environment lead to unaccounted money and situation
of chaos.
Keeping in
mind all the consequences, the public should not keep more than Rs. one lakh in
a single bank. If a person keeps his money in different branches of a single bank,
even then total of his all deposits in all the branches are counted as one account
and no security coverage from DICGC to more than Rs. one lakh deposit even in
scattered accounts in the same bank. In the present scenario, the public should
follow the thumb rule “Never put your all eggs in a single basket.”
Keep your deposits in different banks and not in different
branches of a single bank. How ere it’s not an example of good governance and
the government should come forward to frame rules for securing the hundred
percent earnings of its subjects.
JAG MOHAN THAKEN FROM CHANDIGARH
