At a time when there are talks that India's banking sector has been shaken to its core after the country's biggest banking scam, Bombay Stock Exchange's Chief Executive Officer (CEO) Ashish Chauhan's remarks on the financial crisis are defiantly assuring. Chauhan says the entire discussion around the Rs 13,700-crore PNB fraud is nothing but 'fearmongering'. Vouching for the country's "solid banking sector", Chauhan said the entire amount in the Nirav Modi fraud is equivalent to just three days of interest of all banks.
Addressing students at Massachusetts Institute of Technology's (MIT) day-long conference on 'Pioneering Innovation' on Sunday, Ashish tried to allay fears around the Indian banking Industry saying the sector is robust. "India's banking sector is fairly strong and regulated. In fact, the amount of fraud being talked about in the PNB case is just three days of interest of the country's banking sector," he said.
Nirav Modi and his partner Mehul Choksi, in connivance of several senior as well as junior bank officials, defrauded PNB of around Rs 13,700 crore. Ever since the scam at PNB was unearthed, several similar frauds have been reported across the country, raising questions over PSBs capacity to keep public money safe.
Chauhan indicated the banking sector, including the central bank Reserve Bank of India (RBI), didn't see any structural reforms even after scandals like Harshad Mehta scam. These reforms, he said, should have happened way back in 1992. "We should have reformed the banking sector in 1992. This (Nirav Modi scam) would not have taken place if we had carried out the reforms then. But we have woken up now, we are doing a good job. One of them is demonetisation, other is the GST and third one is bankruptcy code," Chauhan said.
Chauhan explained that the size of the Indian banking sector is so big that it earns a huge amount of interest on money collectively. He added that when banks offer loan at 12 per cent, they already know that "one out of 12" would be a loan defaulter. The BSE chief explained that just it is just three days of the interest of the Indian banking system, which can take care of the entire PNB scam.
"In India we (banks) charge 12 per cent per annum from people who borrow. People who lend to the banks, we give them only four per cent. So basically, the banks earn eight per cent (profit)," he said.
"It is a commercial thing. When they (banks) are taking eight per cent margins, they are assuming that one out of 12 guys are going to be a defaulter. And still they would be okay. They will pay the principal back. One out of those 12 guys in that year has to default. This (Nirav) guy has defaulted over 10 years. So effectively it's 1/10th of the banks. The banking actually works on this. They think, it's the public money. They have already taken the money out of you by not paying the interest," he said.
Showing confidence in the banking sector, Ashish said there's nothing to worry whether your money will be safe or not as the banking structure in India is strong and over regulated. "The banking sector in India is so solid. It's over regulated, just to ensure that if ever anything happens there is enough money to take care (of)," Chauhan said, adding that such episode give banks "enough ammunition to take more money out of you".
"Instead of four, you will get three per cent (interest on deposits) and if you want to borrow, instead of 12 you will get it at 15 per cent. So, do not be panicky, its the other way round," he added.
With PTI inputs
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