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Who is responsible for Rs 32,000 crore Loss in Currency Derivatives to corporate by Indian banking sector ?  Are Penalty of Rs 5 to 15 lacs (That Too To Be Paid from Shareholders Funds) is Sufficient for Such Big Lapses by Board of Directors, CMDs and  EDs of Private / Public Sector Banks - RBI Needs to Introspect.



Rajesh Goyal, Executive Consultant



During the last few months the issue 32,000 crores scam in the banking sector has been kept under wraps and RBI and banks have been consistently been trying their best to keep this issue under carpet.  Inspite of CBI enquiry into the whole affair and court strictures, the issue has NOT been sufficiently highlighted by major financial newspapers owing to the reasons best known to them. 


It has been reported that CBI in its affidavit in the Orissa High Court had mentioned: “The Reserve Bank of India (RBI) has been monitoring the gross end-to-end mark to market losses incurred by the banks. As on December 2008, the gross mark to market gains (corresponding losses to consumers) of 22 banks working in the business of derivative work is Rs 31,719 crore.”


Some believe that this is only a very very conservative estimate and tip of the real scam, as it is believed that the total derivatives contract sold in India as per RBI approvals is 3 trillion USD on December 2008 (as per the statement of P Chidambaram in Rajya Sabha), where as total GDP of India was not more than 1 trillion USD and total export and imports including oil bills were not more than 500 billion USD.   The difference in the value of the dollar however has been between Rs 8.50 to Rs 10 / dollar. If this difference is multiplied by the figure of 3 trillion, we are looking at a figure of Rs 25 lakh crore that has not been accounted for.   If this turns out to be true, then the scam will be even bigger than 2G scam. 



However, RBI and Banks were forced to share at least some information when the affected corporate / importers / exporters filed cases in various Courts of the country and refused to pay the losses and asked their respective banks to pay the same as they have mis-sold such products to them for their personal petty gains and profits for the bank.  Corporate have been given various concessions / waivers so that they do not default on the loans they have availed from the banking sector.


RBI, the only regulator of our Banking system,  had miserably failed to take timely steps so as stop the Banks openly flouting these rules.   In a reply to RTI query,  RBI appears to have taken a stand that it does not vet all the forex derivatives products sold by banks in the country.   However, under pressure from all sides, RBI in April 2011  fined 19 commercial banks, including the country’s largest, State Bank of India, for mis-selling derivatives products to clients  RBI has imposed a small fine of Rs 5-15 lakh on these banks for not complying with its instructions on derivative products.  Who had to pay this fine? Poor shareholders of these banks  had to pay these fines as orders were not to recover the same from salaries of CMDs / EDs etc.  Is a penalty of few lacs on a Bank is sufficient when losses to the economy are in thousands of crores of rupees?  Has any other action like suspension or dismissal of any Head of the Bank or other officials has taken place?  Why RBI had not forced some Heads to roll down for such a big scam.  In 2G scam, even ministers have been jailed when the matter was taken up seriously by honourable SC


RBI and concerned Banks had been consistently seeking shelter of secrecy and  were not ready to disclose any further details.   RBI had been taking the plea that DISCLOSURE OF THIS INFORMATION WOULD AFFECT THE ECONOMIC INTERESTS OF THE STATE  AS SUCH DISCLOSURE TO THE PUBLIC COULD BE DETRIMENTAL TO THE INTEREST OF THE SUBJECT BANK AND TO THE BANKING SYSTEM IN GENERAL.



However, now CIC in one of the judgments has asked RBI to provide detailed BANK WISE AND CUSTOMER WISE  losses in the currency derivatives  to Mr. Raja M Shanmugham who had been fighting to get this information from RBI for now over one year.  (The full judgment is available on this website itself).   Let us see whether these orders are complied with or RBI and banks seek shelter under some other rules.


Now question arises who are the people in banking sector who allowed this kind of scam to continue for months together.  Who colluded with whom ?   From my  experience, I can say  that even CMDs and EDs, GMs, dealers  of such banks had little or no knowledge about the risks such derivative deals carried and were swayed by personal gains they were likely to get in different shapes.  Can junior FEX traders do such large transactions without the knowledge of GMs / EDs / CMDs / Board ?  Were  the top management of these banks were so INCOMPETENT AND UNEDUCATED  that they could not make efforts to understand the basics of derivatives?   With best of brains in India, why we have such incompetent people heading our top Banks ?  Instead of being a guide to the juniors, they bashed people who tried to stop such inappropriate transactions.   A review of the people who actually perpetuated these losses will show that by this time they have been promoted and enjoying all the benefits, and none of them has been punished till date.    Some of them must have retired after enjoying their full terms of service, 


RBI and Banks  now needs to introspect and strengthen their systems and punish the guilty.  How it is possible that 22 banks together flouted rules and RBI could not detect this scam even in one of these banks ?  The continued pressure from various sides may soon bring to light new dimensions of this scam and the names of the Banks and people responsible may have to disclosed soon. 



PS : The author had wide experience in this field.   In case any corporate / importer / exporter has suffered loss on account of mis-selling of the derivative products by any bank in India, the author of this article can be approached  for suitable legal advise / consultation.   Please write to us at : giving a brief details of your  case.