One of the reasons why interest rates are high in India is because the risk perception of borrowers is high. In simpler words, on an average, Indian financial institutions perceive higher risk when it comes to giving loans to borrowers than financial institutions in other parts of the world.
Ironically enough, with the number of financial scams and shoddy dealing rising, it is the depositors today, who perceive high risk in keeping their hard-earned money as deposits with the banks.
This is because the confidence of the public at large in the banking system has been eroded to an extent by the questionable dealings of top managements of several banks.
The year 2018 has been particularly bad for people in the country because it has shown to them how banks are indulging in shoddy dealings, which are not good for the financial health of our system.
The year began with two officials of Punjab National Bank (PNB) getting accused of colluding with jeweller Nirav Modi, which ultimately defrauded PNB of a massive Rs 14,356 crore.
As if it was not enough, reports soon broke out of Chanda Kochhar, the then Managing Director and CEO of ICICI Bank, having conflict of interest in the bank lending Rs 3,250 crore to Videocon Group.
The allegations are that Ms Kochhar’s family members, including her husband Deepak Kochhar, were involved in sanctioning the loan and later restructuring the same to their advantage.
Moreover, the CEOs of two other banks, Axis Bank and Yes Bank, are facing premature end to their term at the hands of the regulator - the Reserve Bank of India (RBI).
The RBI deserves praise here because it steps in whenever it finds some evidence of wrongdoing happening at a bank.
In the case of both Yes Bank and Axis Bank, there was significant difference between what the banks assessed as their own bad loans and what the RBI audit assessed as their bad loans.
After this, the RBI trimmed the term of both Rana Kapoor (CEO of Yes Bank) and Shikha Sharma (CEO of Axis Bank). A question should be asked as to what the board of directors in these banks were doing?
There is no need for the RBI to step in if the board of directors do their job professionally. It is precisely because the board of directors doesn’t do its job that the RBI has to step in and save the financial sector.
There is also a need of political willingness at the highest levels in the country to strongly deal with severe irregularities being reported by the financial institutions.
Moreover, once and for all, the financial institutions must get their act together so that people don’t end up losing faith in them.
