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Expose reveals SBI hid losses of about ₹ 10,000 crores

At a time when public sector banks are under the pump with Punjab National Bank pummelled with the massive scams perpetrated by Nirav Modi and his Uncle Mehul Choksi worth ₹ 13,400 crore and most recently by the promoters of Bhushan Steel worth ₹ 3,800 crore. Further, IDBI Bank has just managed to stay afloat due to government intervention and the mega merger of Bank of Baroda, Vijaya Bank and Dena Bank to help them cope up in the face of adversity. However, one public sector bank has managed to avoid the trials and tribulations of the sector, while maintaining a good reputation; this is none other than India’s largest lender which holds a fourth of the country’s bank deposits – State Bank of India (SBI).

But is this really the case?

According to an expose by Moneylife, and a follow up piece by Business Insider, this is far from the truth. The expose suggests that SBI has hidden losses by as much as ₹ 9,500 crore over three years between F.Y. 2012-13 & 2014-15. And what’s even worse is that RBI fought tooth and nail to sweep this matter under the carpet, thereby not fulfilling its fiduciary duty to report the misdeeds of SBI in its annual inspection of the bank’s accounts.

The matter came out in the open only after a perseverant RTI activist named Girish Mittal was finally granted access to bank inspection reports, after the Supreme Court threatened the RBI with contempt proceedings.

However, the question remains, why would the RBI go to such great lengths and disobey orders of the central information commission and even the apex court and risk its integrity to conceal this information from public view?

The contents of the report give us the answer.

According to the report, the country’s largest bank has suppressed employee fraud, covered up bad loans, flouted anti money laundering rules, indulged in window dressing and evergreening of loans and a host of other violations.

The modus operandi of the bank seems to be to perform a cleanup exercise every time a new chairman is elected. So, in the first year of an incoming chairman, huge amounts are written off and provisioned from its books, to give an impression that the new regime is serious about cleansing the wrongdoings of the past and starting afresh. A similar pattern can be seen with the two previous chairpersons and the current one i.e Pratip Chaudhuri, Arundhati Bhattacharya and the incumbent Rajnish Kumar. But then, after this clean up exercise, the stage of managing profit begins, so as to leave behind a profitable legacy. And to do so, the report goes on to say, the bank conceals bad loans, grants loans to associate enterprises to fulfil loan obligations, indulges in unauthorised lending against shares, does not insist on full security when lending money, does not enforce securities of defaulting borrowers and does not recognise NPAs as per RBI norms.

The forbearance of the RBI in this respect has been startling and not only has the regulator tolerated the evils of its favourite son, but has gone to the extent of concealing it, thereby putting itself at risk.

A possible reason may be the fact that SBI is considered an institution too big to fail, and perhaps, its downfall would truly be the last nail in the coffin of the already crumbling financial system, plagued with one travesty after another.

Most recently we saw the downfall of another financial institution that was pegged to be too big to fail – IL&FS, which did fail, and wreaked havoc on the system, with entities still feeling its effects till date. Maybe the RBI was trying to avoid another scenario like that.

With Finance Minister Nirmala Sitharaman announcing a fresh ₹ 70,000 crore bank recapitalisation scheme in the latest budget, it’s time we stopped wasting precious tax payer money and tackle the problem from the root.

 

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