The Rs 20,000-crore plus Nirav Modi scam has led to the collapse of Punjab National Bank’s share value and also posed a big question mark on the accountability and regulatory systems that govern our government-owned banks. Common investors and depositors have suffered while Mr Modi is celebrating in his luxury hotel suite in New York.
Banking frauds are not new in India. Regrettably, the list of swindlers and big businessmen who have taken massive loans and just not paid them back is a long one. The BJP government came in promising to change all this. Instead, one after another, it has allowed swindlers to get away, to leave the country almost certainly after receiving insider warnings.
Mr Modi is the latest to escape. I can bet we will not see him again.
To amend this situation, the government has proposed a new law – the Financial Resolution and Deposit Insurance (FRDI) Bill. This Bill is being sold as the solution to banking fraud. The government claims it will protect banks and make it easier for the law to catch up with offenders and chronic defaulters. Trinamool Congress welcomed the opportunity for a new law that would fill gaps in the system and bring the guilty to book. But when we studied the FRDI Bill in detail, we found something else. Far from punishing defaulters, this Bill was designed to punish small depositors for the sins of defaulters, corrupt bank managers and political masterminds.
There are four major problems with the FRDI Bill:
One: It can forcibly convert the deposits of common people – retired pensioners, students saving for a higher degree, a home-maker putting away money for a family holiday – into equity shares of the bank. This measure will be undertaken when the bank faces a credit and credibility crisis – when its share is tanking or is junk. Common depositors will be left holding the junk. Those who made the stock junk will be in that hotel room in New York.
Two: The Bill, if it becomes law, can change the nature of deposits from one class to another. This could change the interest rate or tenure of deposit. This means the autonomy and savings decisions and planning of the depositor can be unilaterally changed by the bank. If a parent is saving for five years, with a certain interest rate in mind, to pay for a child’s education, he or she will suddenly find that the interest rate has fallen and the five-year term has become nine years. All because some politically-connected fat cat has run away with the bank’s money. What will the parent do about financing the child’s education? Sell pakodas?
Three: The Bill allows a bank to impose a stay on a depositor’s right to withdraw deposits before maturity. If I have money invested in the bank and I need it to pay for a medical emergency in the family – for example, for an aged aunt who may not have medical insurance – then why should I not be allowed to withdraw my deposit?
Four: The Bill allows a bank to place a moratorium on payment of interest and/or repayment of deposits on maturity. So here’s what your bank manager could write to you: “Dear X, Congratulations. Your 10-year deposit has matured. But we can’t pay you the interest or even give back your principal because Mr N Modi has run away to New York. Tough luck!”
The BJP is making India a strange country where even lip-service is not paid to the poor and the middle class by the government. As Mamata Banerjee, Chief Minister of Bengal, tweeted the other day: “Those who have Kisan Credit Cards and are entitled to loans are being denied loans. And yet some VIP bank customers are looting this country. The self-help groups, those who run small businesses … are deprived of loans. And yet ‘special people’ are being given thousands of crores of rupees. Why this fraud?”
Why indeed? And why is the FRDI Bill increasingly being seen as the (Protection of) Filthy Rich Defrauder Indians Bill? Holed up in his luxury ivory tower, I’m sure Mr Modi will have an answer.
Postscript: When the Bill was brought before parliament, Trinamool led the opposition attack and urged the government to drop the Bill. The government was obstinate, as only the BJP can be, but finally agreed to send the Bill to a Select Committee for scrutiny. The Bill will not come back to parliament in the budget session. In sessions beyond that, it will be steered by a lame-duck government that would be better advised to junk it. Hopefully we have staved off this rich man’s bailout proposal.
[This article appeared on NDTV.com | Sunday, February 18, 2018]