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The Rediff Business Special/ N Vittal

Toward a fraud-less financial sector

Oscar Wilde who was known for very pithy epigrams, pronounced two which are relevant for us today. He said: ''I can resist anything except temptation.'' We all know that over the years every civilisation has recognised three temptations. They are women, land and gold.

The second epigram of Oscar Wilde is equally relevant today. He said: "The thief is the artist. The policeman is only a critic."

When we think of corruption in the financial sector, it is better to remember Oscar Wilde and then see what can be done to build our systems in such a way that the honest administrations or the authorities at least become intelligent critics.

However, we must straightway concede that the thief will always be one step ahead. Of course, one can set a thief to catch a thief but then we do not want to have the financial sector run by the thieves.

The financial sector consists of the banks, the financial institutions and the capital market. As Central Vigilance Commissioner, I find that 40 per cent of the cases that come to the CVC relate to frauds. We may therefore start by examining the corruption dimension in the banking sector.

Corruption has its root in greed. Ultimately, the level of corruption in the banking sector or for that matter in the financial sector is going to depend upon the quality and the nature of the people who are operating in these sectors. As CVC, I have been advocating a sort of a structural approach to the issue of tackling corruption.

Ten per cent of the people will be honest whatever we do. Ten per cent will be dishonest whatever we do. Eighty per cent will be honest or dishonest depending on the system. So if we want to tackle the problem of corruption in the financial or banking sector, we should focus on the system and see what can be done to create an environment in which there will be less scope and temptation for corruption.

If we look at our financial system today, we find that one glaring deficiency is the fact that in this age of information technology, and the shift towards digital economy, our banking system is hopelessly in a manual mode. Out of 65,000 branches, only 5,000 are computerised.

I am told, may be about 25,000 to 30,000 branches deal with nearly 80 per cent of the business. It may not be possible to computerise the rural branches. But I need not remind that one of the greatest scams in recent times, the Harshad Mehta scam, took place in Bombay because in the public debt office of the RBI, there was a manual system. A 15-day float was available and that was exploited.

Like locking the stable doors after the horse fled, I understand the computerisation of the public debt office was done after the scam broke out. The explanation of the government if I remember rightly is that the scam took place because there was a systemic failure. So, it is very obvious that we have to look at the system and improve the same.

Computerisation is the key to clean banking system

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