A typical city bank branch, having a staff strength of around 50 and holding a number of deposit accounts of some 30-40,000, operates only two counters for cash deposits and withdrawals. Sometimes, it takes 60 to 90 minutes for a single cash deposit or withdrawal formality at many such branches. Most bank branches pay little attention to the printed advice on cheque or draft deposit slips that requires they be received by a bank officer, signed and stamped. They maintain a cheque collection box or drop box instead and, naturally, take no responsibility for the loss or damage of such cheques due to careless handling by a bank peon or some mistake in writing by depositor. Such drop boxes are invariably kept unattended in one corner in the open area of a bank branch. A depositor has nothing to prove that he or she had actually dropped the cheque in the box if went uncleared. Although deposits serve as backbone to any banking business, depositors are probably the most neglected and often a harassed lot.

Creditors, on the contrary, are the most sought after and pampered people. They are the ones who contribute to 'income' of banks. They are bank customers. The big ones are treated royally. The branch manager himself meets them, often over cocktails and lunch. High credit off-take means large bank earning and more profit. Interest rates, both for deposits and lending, liquidity position, quality of credit or asset and loan recovery play the most vital roles in the banking operation. However, modern banking is hardly pure banking. It is more complex. 'Priority banking', consumer banking, credit cards, risk finance, housing and real estate finance, inventory and trade finance, investment banking, foreign exchange dealing or money changing, options and derivatives, etc. now form part of routine operations of any large commercial bank.

And, the human factor, especially honesty, integrity and intelligence, of bank employees, holds key to success of increasingly diversifying banking operations. It offers a big opportunity for the use of discretion by bank officials and also scope for its misuse by corrupt and greedy among them. The unique system of valuation of a borrower's asset, which may include his business reputation and brand value, and accounting practice that invariably allows understatement of losses and sticky loans, work as shields to protect dishonest bank officials, at least for some period of time.

Three years ago, at the height of the real estate boom, a small State Bank (SBI) branch at Jakhan in Uttarakhand, displayed the quantum of its non-performing assets (NPAs) that year at close to 40 per cent. And, almost all of it was in the form of lending to real estate developers. The branch manager retired the very next year, 2008, in normal course. In the 1970s and 1980s, nationalised bank loans to industry, which turned sour, ran into lakhs of crores of rupees. While the Reserve Bank of India (RBI) had come to the rescue of these banks through a two-tier recapitalising programme then, no serious investigation was made to ascertain how much of those bad loans were on account of inept accounts handling and corrupt bank officials and identify them.

Few bank officials have ever been sent to jail and had their personal assets attached for cheating banks or, in other words, the public depositors. The first time a huge banker-businessman nexus became official was during the 1992 stock scam, in which banks and small investors lost about Rs. 6,000 crore. But for a suicide by a top banker (National Housing Bank) under investigation, no bank official received exemplary punishment. Although a big stockbroker involved in the scam, arrested for investigation, died later in 'heart attack', no businessman worth the name was booked.

No wonder corrupt bank officials continue to bleed their banks through dishonest deals with borrowers and in questionable investments. The latest admission by SBI chairman O.P. Bhatt that the banking industry's profitability may come under pressure due to a probable rise in bad loans and a squeeze in margins is an eye-opener. Notably, Bhatt was concerned about the rising NPAs, especially in the small and medium enterprises (SMEs) sector, and the RBI stipulation requiring 70 per cent provision coverage against bad bank loans. However, he made no mention of the sticky bank loans to commercial real estate enterprises which are the worst defaulters, inflicting a Rs. 10,000 crore hole in SBI's books of accounts by the middle of last year. It would be worth knowing the extent of faulty decisions by bank officials using questionable valuation norms which were responsible for such huge accumulation of bad real estate sector loans.

Today, huge capital expansion in the market and large surplus liquidity with banks, which are also contributing to inflation, coupled with questionable accounting practices, have provided the ambitious, dishonest and careless among bank officials enough flexibility to build nexus with borrowers, big and small. According to the latest reports, liabilities of Indian banks may go up by one per cent to close to Rs. 80,000 crore in 2009-10 as the credit extended to sticky commercial real estate has increased phenomenally. The total outstanding credit to commercial real estate by Indian banks, both government and private-owned, stood at Rs. 91,000 crore at the end of March 2009 as against Rs. 63,000 crore till March, 2008. The Punjab National Bank tops the list of outstanding credit to commercial real estate with a total amount of over Rs. 11,000 crore in 2008-09.

While huge outstanding loans forced banks to have them restructured to help their recovery from borrowers, response from industry, despite a higher economic growth this fiscal year at around 7.5 per cent till November, last, is far from encouraging. Commercial real estate, infrastructure, textile and steel account for nearly 50 per cent of restructured loans by Indian banks, last year. Asset bubbles created at the expense of banks are not sustainable in the long run in any society. Japan was the first country to learn it in the 1990s. China is still learning it to keep pushing its high GDP growth rate. The problems of credit mismanagement and banker-borrower nexus in the industry appear to be universal. Even the Basel Committee on Banking Supervision is grappling with the problem of enforcing accounting reforms, including asset valuation norms, and making banks provide adequately for soured loans. In India, unfortunately, the authorities such as RBI and the Union Government, which owns a vast majority of large commercial banks, have been soft on bank management over such issues as expansion of bad loans, poor accounting system and valuation of credit asset and corruption involving bank men and businessmen. (IPA Service)