The Central Bureau of Investigation has at last dug into something without being prompted, and unearthed a massive scandal where loans were given for bribes to real estate and other companies that could be financially weak, with a dubious private group playing facilitator. With the advent of economic liberalisation in the country, white collar criminality appears to have risen conspicuously. Thus we have in this latest episode of the scam-tainted season top executives of esteemed public sector companies such as Life Insurance Corporation of India and the Central Bank of India, besides a clutch of others, playing footsie with private builders. While further investigation will reveal the extent of the damage, it does appear reasonably clear that the fraudulent infusion of funds belonging to the public — following the acceptance of hefty bribes — to bolster the resources of companies for a variety of ends cannot have come about if the regulators in the field had performed. Ripple effects impacting the stock market have naturally ensued, and this will further hit the common man who has now begun to place his savings into mutual funds.
Mercifully, this particular instance of criminality does not appear to have followed from directions of top politicians or administrators. However, this is not to say that better government functioning cannot help ward off disgraceful episodes of this nature, even granting that the greed of individuals does try to invent ingenious ways to bypass the system. There is no doubt that the Indian banks and financial institutions are among the best regulated in the world. That is one of the factors that cushioned the Indian financial system from the virus that brought the global financial system to its heel two years ago. Nevertheless, bribery as a phenomenon is as old as the hills in our social, political and economic system, affecting its every pore. The banking sector can hardly be said to be immune to it. The banker-borrower-dalali nexus has been institutionalised since economic liberalisation began in the country. Money Matters, the company that was the kingpin in the housing finance bribery scandal, and whose promoter and managing director and other officials have been arrested, said it acted as a “facilitator” of loans. The question to worry about is the sanctity given to this kind of dalali, which makes it easy for those who have money to get loans and next to impossible for those who cannot afford bribes.
The arrest of an independent director on the board of the Central Bank of India highlights another important issue crying for rectification. This is the role of independent directors on the boards of public sector banks. Most of them are political appointees of the party in power and are said to play havoc in seeking to influence the decision of who to give loans to. Given this, it is scary to hear the regulator Sebi say that the present instance of bribery is “an isolated incident,” when investigation is still under way. Such an observation is clearly self-serving. While it is not easy to check individual greed, the Reserve Bank of India’s surveillance department can start with looking into the line of credit extended to the builders. Apparently this runs into impressive figures and the end use is hardly ever ensured. This is how money is siphoned out by manipulating the system. Banking experts believe that the government will also have to look into the books of the urban cooperative banks that are said to be the mainstay of the builders in places such as Mumbai, Pune and Nasik. This is as good a time as any to bring the hammer down on such invidious practices if our real estate sector is not to become India’s version of the subprime crisis in the United States. In the end, it is the people’s savings at stake.