Corruption: The rot starts at the top

Ever since the Syndicate Bank chairman and managing director SK Jain was arrested by the CBI on August 2, there have been various reactions from bankers and the public, pressing for better governance, amidst fears that credit facilities from banks would be delayed.

It is feared that a crackdown would lead to a situation where bankers, fearing for their careers, would hesitate to sanction loans, impacting industrial activity.

Some banks have reportedly taken extreme steps like banning middlemen from entering their premises and disallowing their managements from dealing with them.

Further, it appears instructions have been given that all official meetings with the CMD, executive directors and general managers will be held in rooms fitted with CCTV cameras, with notices making clear that proceedings are subject to surveillance and will be displayed. Visitors would only be allowed to carry with them the papers, laptops and tablets required for the meetings or discussion; and these would have to be passed through an X-ray machine.

However, I feel all this will not lead to significant outcomes, because the plain fact of the matter is that corruption is a product of one’s mindset and culture.

In many government departments and public sector undertakings employees take an oath every year that they will not accept bribes; their offices display signs saying offering and accepting bribes is a crime. Yet, the malaise is so deep-rooted and widespread that it is accepted as a part of life. So, with due respect to the intentions behind putting in place gadgets and other devices, I believe they are not enough; the culture itself should improve.

Here, the executives at the helm invariably make a difference. Officers at the lower and middle levels keenly observe them. A positive message down the line percolates effectively and no effort of middlemen on the wrong side can subvert the positive impact. The question, therefore, is whether such positive messages are indeed transmitted in the Indian banking sector.

The initial display of sternness when a new person takes over is mainly to ensure there is little or no resistance, later making them conduits for bribes. A carrot and stick approach of awarding promotions or issuing transfer orders can be used to make subordinates pursue selfish ends. The new incumbent at the top, usually from another bank, generally criticises the entire system in the bank and makes officers submit to pressure from the top. Dishonest elements down the line could take advantage of the situation, which gives corruption a multiplier effect; eventually room is created for dishonest middlemen, and that is how the whole system is affected.

The RBI governor has rightly observed that “there are some good middlemen and some not so good middlemen. A good middleman acts as broker but if the point of a middleman is to pay bribes that is obviously not okay. It is part of the whole set of governance issues that we need to look at”.

To tackle the issue of corruption, the banking system needs to improve governance. The message that bribe-taking and giving will not be tolerated should explicitly percolate from the top, down the line. Training schools and colleges run by banks should educate officers and staff to keep away from malpractices. Seniors should welcome frank opinions and not get carried away by undue praise and flattery.

Facilitation should be entertained only from persons of sound financial knowledge, experience and integrity. Simultaneously, banks have to take a closer look at their policies and procedures and loopholes should be plugged.

The Finance Ministry and the RBI should take a fresh look at the loan approval committees of PSBs. An impression has been created that the committee approach means no personal responsibility. Hence, frank opinions are not expressed against un-bankable proposals. Remaining silent when principles of credit appraisal are compromised is, in a way, participating in malpractice. Besides, there should be more a critical annual review of the performance of top-level management.

Officers at all levels should learn to always act in the interest of the institution without fear of transfer or not being considered for promotion. Taking calculated risks is an integral part of banking, and therefore officials should not be afraid of bonafide actions in support of which they should keep records.

While the Syndicate Bank incident is an eye-opener, bankers should not get bogged down by it. The situation should be utilised to cleanse the system.

The writer is former general manager of a nationalised bank