Why our bankers are like Gabbar Singh - The Honest Truth By Ajit Dayal
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Investing in India - Honest Truth by Ajit Dayal
Why our bankers are like Gabbar Singh A  A  A
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20 JUNE 2013


Gabbar Singh, the famous dacoit from Sholay - the film that captured the imagination of India in 1975 - may be dead but his teachings live on.

The ruthless dacoit had no qualms about getting rid of his own men (recall the classic: Saalaa bach gaya). And Gabbar was fearless (Jo dar gaya, so mar gaya).

Indian bankers are the Gabbar Singh of today. Like Gabbar, they sense the macro opportunity of a vacuum. In Gabbar's reign there were few cops to challenge him and he could rule the ravine. With no legitimate law enforcement, Gabbar was the law. No one could touch him but he could knock off anyone, even members of his own gang.

Our banks know the great macro story that gets harped from North Block to Mint Street: India needs more banks. Of the 600,000 clusters of population in the country, about 5% (30,000 clusters) have access to the bank account. In their desperation for "financial inclusion" the overseers of the banking system may be willing to look the other way when it comes to this acceleration towards "inclusion".

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The policemen abandon their posts?

The CobraPost sting operations showed the hollowness of the KYC process in the savvy private sector Indian banks, the stodgy PSU banks, and the slick foreign banks.

A bank is the first line of defence in a society that wishes to curb or eradicate black money. Yet, the officials from the many banks are happily offering ways to cleanse black money to white.

The first reaction of the RBI - from Deputy Governor K. C. Chakrabarty - on March 21 was nothing has happened "as no transaction had taken place...Our system to monitor money laundering is perfect". It is possible that the RBI made this knee-jerk statement (without any inspection of the banks' books) to eradicate any thoughts that the Indian banking system was as vulnerable as the Cyprus banking system. Cyprus banks had just been shut down, albeit for very different reasons. In light of the global panic at that point in time, let's accept this statement as a reassuring lie rather than a falsehood.

By June 10, the RBI had imposed a fine of Rs 5 crore on Axis Bank, Rs 4.5 crore on HDFC Bank, and Rs 1 crore on ICICI Bank. These fines were placed after the RBI had time to examine the cases and the RBI "came to the conclusion that some of the violations were substantiated and warranted imposition of monetary penalty".

The share prices of the banks increased after the announcement of the quantum of the fines.

In an article on June 6, The Hindu quoted Rajiv Takru, the Department of Financial Services Secretary, Government of India, as saying that the fine should be Rs 500 crore. The RBI Governor D. Subbarao said that the fine of Rs 1 crore (apparently limited by an act of Parliament) was "peanuts". According to The Hindu, Deputy Governor Chakrabarty reportedly held his ground and said that banks (which have profit making as an objective) could start passing the fines to their customers in the form of higher fees and interest rates. According to him the purpose of a fine should be to "name and shame" the banks found guilty.

Gabbar is alive - and expanding

So, Gabbar had six bullets in his gun and three of his henchmen to knock off.

The banks have already knocked off the employees who were caught in the CobraPost sting operation. Saaley nahi bache.

The fines have been paid and the dust of a bad name has been washed off. The path to provide financial inclusion is laced with bonus packages for the CEOs and senior managements of the banks. They will continue to take the risks in their "bania ka hisaab kitaab hai" attitude. Reputation is an ESOP fattened by a wholesome market cap

There is fee income to be earned from mis-selling mutual funds, mis-selling insurance products, and acting as alchemists who can convert black to white.

They know that the regulators are scared to stop them from opening new branches because, god forbid, if they do stop bank expansion the financial inclusion dream will be in jeopardy. The "social objective" will be lost. So the money laundering machines will spread across India.

And they know that the bank fines will be of the "peanuts" variety. Neither the RBI nor the Independent Board Members are going to touch their salaries, their bonus pools, and their ESOP plans (Hint: maybe they should!).

So, the banks have once again proven they are too big to be fined, too big to be punished, and too important to be held back. The moral hazard is not on their heads, it has been transferred to the lap of the regulators.

Banking was a boring business.

But a lot has changed since Gabbar Singh took over. Now the banks are built to take risks and shed all fear of a serious reprimand. If "naming and shaming" had any relevance to the society we live in, most Indian industrialists (and many in the financial services industry) would be fakirs by now wandering aimlessly across the Indo-Gangetic plain in search of the mystical. Instead, they are surrounded by the material with some CSR to sprinkle around.

Which gets back to the other famous Gabbar quote: "Jo dar gaya, so mar gaya".

With no dar in the system, the mad expansion of bank branches will continue.

The mar will be for us.

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Disclaimer: The Honest Truth is authored by Ajit Dayal. Ajit is a Director at Quantum Advisors Pvt. Ltd and Quantum Asset Management Company Pvt. Ltd. The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and has not been authenticated by any statutory authority. The author, Equitymaster, Quantum AMC and Quantum Advisors do not claim it to be accurate nor accept any responsibility for the same. Please read the detailed Terms of Use of the web site. To write to Ajit, please click here.


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8 Responses to "Why our bankers are like Gabbar Singh"

ravi k talwar

May 10, 2016

Bank is not GABBER SING. The controller who instruct the Bank to give loan to certain parties to safeguard employments and let the company continue to run. What company gets is the chach of loan because he get that amount after a year and has in the mean the project cost has increased many fold due delay from clearance and cost has increased for the raw materials + labour etc etc.This has to be stopped.

GABBER SING IS OUR SYSTEM and we are part of the system which require to update their SOACH.

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Gujarati news

Oct 17, 2013

very nice post. I agree with your view.Super article. Fully agree. All my accounts with ICICI, HDFC AND Axis banks etc. Hat should be the job of distribution agents and not bankers.

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naveen

Jun 22, 2013

reason for new branch "inclusion" is good for two reasons. Good for people located in the region. And good for people who are 'not' located in the region but exist as bank account names for various reasons. And probably they will be built in region where norms and policies are assumed and are spoken words than being in documents or in s/w. The second good reason is for various other reasons.
Probably, the bank is located natural disaster area. So that the money is parked for a while. Untill then....
Oh am not done. The new food bill which is going to pass on 13000 rs annually to a household may be to a 'benami' account....umm probably.

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Panchu

Jun 21, 2013

Mr. Dayal,
Please do not forget there are people like me who neither know Hindi nor watch Hindi films, but do follow your columns. So if you use, especially repeat Hindi words or phrases to emphasise a point, using English translation in brackets would help read your columns more completely.

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SIVARAMAKRISHNAN

Jun 21, 2013

All my accounts with ICICI, HDFC AND Axis banks were hacked using my e-mail ID and I would like to know when the compensation will be made. Until then i wish to keep all my account balance in zero.

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P.Ananda Krishna Kumar

Jun 20, 2013

You are absolutely right that our private bankers are ten times bigger than the old Gabbar Singh. The CEOs and his/her team are well trained how to push the blame on others for any wrong doings detected and at the same time receive awards including Padma Bhushan award fro Govt of India and best Women CEO and other awards. Recently the ED of ICICI Bank, who is in charge of Retail Banking has sent a message to all the account holders of the Bank about the initiatives launched by the Bank during the year but failed to mention the lapses committed by his team. In fact all the three CEOs of the 3 pvt banks are lacking basic knowledge of banking business except managing RBI and Finance Ministry officials. Surprisingly the CEOs of ICICI and Axis Banks are none other than the project officers of erstwhile ICICI, who lack basic banking business. In fact the ED, who is in charge of HR in ICICI Bank, who lacks both project funding knowledge and banking business sits in sanction committees for approving the proposals. The how will be the quality of proposals and he is not accountable for any NPAs. Recently there was a news item that the salaries of CEO and her team in ICICI Bank are getting increased by the Board. What is the logic? Is it a reward for their inefficiency in conducting banking business

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Sundar Rangan

Jun 20, 2013

Super article. Fully agree. Honestly, one cannot understand the clamour for more banking licenses when regulator is unable to monitor functioning of existing banks. By the by, the cross-selling of products should be mandatorily stopped. That should be the job of distribution agents and not bankers.

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Satish S Dabholkar

Jun 20, 2013

I agree with your view.These Banks give free hand to employees to expand the business at any cost,If any penalty is levied Bank management is ready to take care of the same.The management is aware that amount of business is achieved is far less if it is compared with penalty.Similarly there is not 100% checking of KYC by regulators and because of this many accounts without KYC compliance will remain in the economy.

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