Expense Account, Mint
Two things happened in the last week that seem not to be connected but should be. The Citibank fraud bubbled up through the mud and more quietly the Financial Stability and Development Council (FSDC) had its first meeting. The first is a tiny example of what is wrong with the banking sector in India and the second may be a vehicle that could solve this. Though frauds can take place anywhere and in the best-regulated environments, the Citibank case points to issues other than fraud. Step back from the immediacy of Rs300 crore siphoned off by a suspected rogue employee (and we’re not really sure if that is true—how could an individual do this without even one compliance officer seeing a red flag?) and I see the problem in the banking sector as twofold. One, the government is the largest single owner of banks in India and, therefore, any reform that will shake status quo is very slow to take place. Two, the banking regulator sees its job primarily as a banker to the government with large macro goals and with the other major goal being to prevent bank failure. While this goal set may have worked well two decades ago, a third needs to be added, and very quickly, which is to protect customers from fraud and mis-selling of financial products.