 Hello and welcome to NewsClick. I am Paranjoy Guha Thakurtha. We are going to show you three episodes which disclose the ugly underbelly of India's banking and financial sectors. The first episode deals with the bigger problem of non-performing assets and banks failure to disclose these in their balance sheets. And we are going to specifically look at India's largest bank, the government-owned, the public sector state bank of India. In the second episode, we are going to look at two prominent individuals, R.C. Bhargava and Shikha Sharma. And the roles they have played and what it means for corporate governance in the financial sector. And in the third episode, we are going to look at two prominent private sector banks, HDFC Bank and Kotak Mahendra Bank. And look at how they've been dealing or not dealing with customer complaints and why there have been periodic digital failures in India's largest private sector bank. The person who is going to be analyzing and explaining these issues to all our viewers and to all of you is Hemindra Hazari. Hemindra Hazari is an independent analyst of India's banking and financial sectors. He is registered as a research analyst with the Market Regulator, the Securities and Exchange Board of India. And Hemindra has been, let me put it, a trenchant critic of the working of India's banking and financial sectors. And in that process, I should say, without flattering you, you're doing a human service to the public of this country. Hemindra, my first question to you, for the year that is over, the year that ended on the 31st of March 2019, 10 banks, they disclosed unreported non-performing assets, non-performing assets for those who don't know, loans that have been given by banks which have not been repaid. And the total amount that these 10 banks did not disclose, were to the tune of almost 24,000 crores. Now, this was the divergence between what the banks disclosed in their balance sheets and what the country's central bank and banking regulator, the Reserve Bank of India, revealed in its audit reports and its findings. The State Bank of India led the way with almost 12,000 crores, 11,932 crores, followed by, yes, bank, which is a private bank, curiously, about 3,277 crores. Then came a host of public sector banks like Punjab National Bank, Central Bank of India, UCO, Bank of India, Indian Overseas Bank, Indian Bank, Lakshmi Velas Bank. Okay, so if I ask you to look at the big picture, why is this happening? See, essentially it is happening because, one, the broader economy is in very poor shape. In such a situation, you will find that NPAs are going to rise in both in the corporate sector as well as in the retail sector. But this divergence that we are finding is mainly for the corporate loans, which indicates to you that as of the year ended March 2019, the corporate sector continued to remain in very poor shape. And that, I'm sure, has continued even in this financial year. So one is that the broader question of the economy being very poor. And two, and this is where the inflated accounts really come into the picture, is that bank CEOs have become so obsessed with the share price that they have to show the accounts to be much better than what they are. They resort to these kinds of inflation of net profits. Fudging of accounts essentially, isn't it? Very true. And you're saying just to show that your shares, your stock prices are going up in the market. Correct. So you're willing to compromise on good governance? Most definitely. And mind you, in banking sector is all about trust. After all, the public gives the banking sector unsecured deposits on the promise that they will get them back. And that is based on trust. Now, if the banker and the bank itself is hauled up by the regulator for producing fraudulent and not trustworthy accounts, what does it tell you about the practices in the banking sector itself? And you know, one has to be extremely careful here is that you cannot lose the public's confidence in the banking sector because if that were to happen, you would have a massive run on banks. And that is the ultimate nightmare for any economy. Therefore, bankers have to be, you know, chief custodians of honesty, of ethical conduct, of professionalism. But sadly, what we have seen in the last couple of years, they're anything but that. Okay. Now, again, sticking to the big picture, over the last three years, last three financial years, all Indian banks put together have written off bad loans to the tune of about roughly three lakh crores. And in the first six months of the financial year, which is still on, that is 1920, this figure of bad loans being written off were in the region of about 90,000 crores. That means if we look at it today, I mean, over the last four years or thereabouts, banks in India have written off at least four lakh crores, 400,000 crore rupees. Now, compare that with the gross NPAs, the total non-performing assets of the banking sector. At one stage, it had touched 10 lakh crores. I mean, to put that figure in a certain perspective, if your gross domestic product is 200 lakh crores, that is about 5% of your GDP, which is alarming. Now, we know there are many sectors which are stressed, power, telecommunications, infrastructure, real estate, and we have all these non-banking financial companies like infrastructure leasing and financial services and Devan housing and financial services, and both these two companies, organizations or groups have gone under, and others are threatening to go that way. There are real estate companies which are very, very, in a very bad shape, J.P. Greens, Amrapali, India Bulls is in a bad shape, yes. How would you analyze the big picture? See again, banking is a proxy for the economy. So, it just tells you what the actual state of the Indian economy is and what it has been going through. And sadly, I really don't see any recovery, all the indications are that things are getting worse. So, this tells you that it is the economy that has created a lot of these problems. In addition to some of the massive siphoning off of funds by the private sector in a lot of these infrastructure projects that they set up, which was, mind you, a direct result and a consequence of privatization, that if these projects were not privatized, they would have been, the government would have set them up, the ownership of the asset would have been with the state. In this case, you have an asset which has been highly inflated because the promoters and the management have siphoned off monies and the ownership of the asset is with the private sector entity while the largest stakeholders may be government banks because these projects had a debt equity exceeding one is to one. Let's focus a little bit on India's largest bank, the state bank of India. As you have rightly pointed out, you know, these banks are holding unsecured deposits from the public. They have a role to play, an important role to play in the working of the economy. Now, what according to, and you point out the Banking Regulation Act of 1949, if you have willfully provided false information, misinformation, that is supposed to be a criminal offence and you can be jailed for it, but you have argued that the Reserve Bank of India, the country's central bank and apex monetary authority and the Banking Regulator seems to be most reluctant to enforce these laws or this particular aspect of the law or this particular provision of the law as a result of which those who are responsible for fudging the bank's accounts get away. So if we look specifically at the state bank of India, in financial year that ended in March 2017, Anshula Kanth was the state bank of India's chief financial officer. She was promoted to the post of managing director. She became a member of the state bank of India's board. Under her tutelage, she was misreported accounts. She was then selected as the chief financial officer and the managing director of the World Bank. Take another lady, prominent banker, Arundhati Bhattacharya, executive chairman of the state bank of India. The bank inflated profits in fiscal year 2014, 2015, 2017. Government gave her one-year extension as a chairman. She was called the banker of the year 2016-17 by business standard newspaper and now of course she is on the board of India's largest privately owned corporate entity, the Reliance Industries Limited. So these people under whose tutelage you say the bank has been misreporting its accounts, they are rewarded, they get plum posts. Very true. Now again, if you see the law, the law has been set up with a specific purpose that since banking is such a strategic industry and plays such a vital role in the economy, the law has taken, you know, willful misreporting of any information by the banks extremely seriously. That has made it a criminal offense, jailable. But what we are seeing is that nobody seems to be one being, you know, indicted under those criminal codes. And not only are they not indicted, they are not punished. In fact, indeed they are rewarded. And that is why I've been pointing out in my research notes that you have this bizarre situation that if you are accountable as a CFO, which you are of the financial, the CFO's job, a chief financial officer's job, main job is to keep the integrity of the accounts. Now if the regulator has found that you have misreported those accounts, then as an analyst I have to question and say that what is the punishment for the concerned officials? And what I find truly astonishing is that not only is there no punishment, they are actually, they are rewarded. And the people responsible for the accounts is, it starts with, you know, the chief executive officer. Then you have the chief financial officer. Then you have the chairman of the audit committee, which is normally an independent director. And then you have the auditors. So all these and when the regulator has found that the accounts do not reflect a true and fair view, then I expect the regulator and all the board of directors to take stringent action against the concerned officials. But I have not seen any case so far where the board is taking action at best. You know, it's the reserve bank which finally comes in and, you know, takes some action. And instead of being, you know, for whatever they have not done, the errors of omission or whatever, or the absence of being able to ensure or the inability to ensure good governance in the banks, they end up getting rewarded and plumbed posts. You see, what is also, you know, extremely disturbing is that the media is a watchdog. Analysts like myself, the profession of research, our watchdogs are sentinels. But all the entire community would just zip up their pens and zip up their mouths and don't even dare point this out. Close their laptops. Exactly. They don't even want to point it out. So nobody raises their voice at these, you know, gross violations. Well, Hemindra, we conclude the first episode at this juncture. And you have explained in some detail the big problem of non-performing assets and lack of good governance in India's banking sector as a whole and the state bank of India in particular. In the next episode, we're going to look at the track record of two prominent corporate captains. Individuals who are lionized as great corporate leaders. We'll talk about the record of Mr. R. C. Bhargava and Ms. Shikha Sharma. That's in the next episode. And the one after that, we'll look at the digital disaster in HDFC Bank and how HDFC Bank and Kotak Mahindra Bank have been dealing with customer complaints. Keep watching NewsClay. There's much more to come. This is just the conclusion of the first episode.