The Modi government just gave its fraud-hit banks a 15-day ultimatum

Image: Reuters/Vivek Prakash
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The full bloom of banking frauds in India—from Nirav Modi and Mehul Choksi to Simbhaoli Sugars—has left the government desperate. So it has set an almost impossible target of cleaning up the rot in the country’s state-owned banking system in just 15 days.

On Feb. 27, Rajiv Kumar, secretary in the department of financial services, tweeted that such banks, which have been stumbling from one crisis to another, are being given a fortnight to improve management and operations

A poor risk-management framework and a lax system have led to a slew of scams and a pile of bad loans, which threaten to destabilise the country’s banking system.

However, a crisis of this proportion needs time to be solved.

“It had taken about 50-60 years for some of these systems to be set up and expecting that process evaluation and re-engineering can be done in just 15 days is a tall, tall order,” said Ashvin Parekh, managing partner of Ashvin Parekh Advisory. “It is even more difficult in the Indian context where the banking system differs depending on geography, size of branches, customer type, etc. Therefore, for banks to come out in such a short period of time and say that they are compliant or not, or determine how effective their risk-management practices are, seems extremely difficult,” he added.

In the last two weeks, several state-owned lenders have alerted shareholders of massive frauds. This includes Punjab National Bank (from which nearly $2 billion has been siphoned off), Bank of Baroda (Rs3,700 crore), and the Oriental Bank of Commerce (Rs109.08 crore).

State-run lenders account for over 70% of India’s banking industry and definitely need an overhaul—but 15 days is just too little for that.