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Friday, Nov 22, 2019

The PMC Bank fraud exposes the limits of capitalism, writes Barkha Dutt

What makes this especially outrageous is that this could have been caught much earlier

columns Updated: Oct 19, 2019 06:57 IST
People wait outside a Punjab and Maharashtra Co-operative Bank branch to withdraw their money in Mumbai, September 25
People wait outside a Punjab and Maharashtra Co-operative Bank branch to withdraw their money in Mumbai, September 25(REUTERS)
         

The Enforcement Directorate (ED) has attached the vast properties of Rakesh Wadhawan and his son Sarang. These include their Rolls Royce, Audi, Bentley and Bolero cars, Ferretti yacht and Falcon 2000 private plane. These are just some of the assets that the promoters of the Housing Development and Infrastructure Limited (HDIL), the bankrupt real estate firm, had to give up to the ED to put on the block to repay the loans owed by them to the Punjab and Maharashtra Co-operative Bank (PMC).

I don’t know about you, but I found myself somewhat repulsed reading about the enormous wealth that the Wadhawan family has been sitting on. Look, I am no Marxist and, like all capitalists, believe that wealth-creation is a perfectly legitimate aspiration. If anything, there has been too much hypocrisy within the old liberal elite about the doors that hard-earned money can open in a highly hierarchical society.

But how can we forget that three people have died this past week, possibly from the anxiety of losing their life’s savings in PMC Bank? Two suffered stress-induced heart attacks; a third was driven to suicide. Then remember that HDIL is charged with siphoning off more than ₹4,000 crore from the bank and dressing up the non-performing asset (NPA) behind fictitious accounts with the collusion of bank officials.

Suddenly this — and the 40 properties the family is reported to own — just sounds obscene. There is something vulgar about the ostentation and amassed wealth, given that thousands of depositors — hard working, middle class Indians — are staring at a life of uncertainty and financial turmoil. The father-son duo of HDIL could have sold their properties, private jets and swanky cars in order to repay the loans. But they did nothing, and the PMC Bank went down. The bank fraud is one of the most under-reported stories of our time. Every day, for weeks, depositors have gathered outside the bank to try and draw national attention to their plight. Among them the elderly, parents to special needs children and single parents are especially vulnerable.

What makes the developments especially outrageous is the fact that this fraud could have been caught much earlier. Its roots go all the way back to 2008. The nexus between the bank’s chairman Waryam Singh and HDIL is particularly egregious. Singh was on the board of HDIL and held 1.91% shares in it till 2017. No surprise then that HDIL was able to secure a loan from the PMC Bank even after it had defaulted on its debt to Bank of India. Worse, the Reserve Bank of India recommended the removal of Waryam Singh in 2018, flagging irregularities in his conduct. It’s a mystery that this was neither followed up on nor implemented. In the meantime, 21,000 dummy accounts were created by bank officials to shield HDIL.

The PMC Bank scandal was literally waiting to be called out. Its NPAs reportedly doubled in the last financial year; so why didn’t the firm that audited its accounts red-flag this? The Bharatiya Janata Party (BJP) and the Congress have often slugged it out over who is more responsible for the bad loan scams in our banks. Given that the Narendra Modi government has vowed to clean up the rotten system it argues it has inherited, and that the ED is newly energised, one has to wonder why the colluders and the corrupt in both the bank and HDIL were not caught out earlier. The lavish lifestyles of businessmen and women would typically be no one’s business. But today when you read about the beachfront 22-room bungalow in Alibaug, or the 15-car fleet that the Wadhawans own, it makes you question the concept of limited liability that promoters enjoy in India. Whether it’s Vijay Mallya or Rakesh Wadhawan, if their malfeasance is at the heart of their wealth creation, why should their personal assets and money be protected?

HDIL literally robbed a bank. Much of the assets they own may not have even been in their possession had the bank not camouflaged them all these years. The logic behind separating personal wealth from professional risk has a different logic. It is premised on the assumption that honest businesses can also fail, because of a changing market, a slump in the economy or any number of other reasons that have nothing to do with irregularities or manipulation of a system. In such a situation a promoter’s earnings, possibly even acquired from other sources, do need to be guarded. This is important to encourage entrepreneurial spirit. But when you get rich by twisting the system, you had better pay up.

Else, frauds such as these expose the limits of capitalism.

Barkha Dutt is an award-winning journalist and author

The views expressed are personal