The recent spate of criminal scandals to rock beleaguered PSU banks have been telling of the general level of corporate governance followed in the banking industry. Let’s set aside the obvious cynicism that a “regime change” at the Centre has prompted the cleanup of specific PSU officials with outdated political affiliations. On second thoughts, let’s bring the cynicism in the comments section. There is little scope for conspiracy theories in the rest of this article. Let’s use the article instead to consider what measures need to be taken to promote improved governance and behaviour.

First: at present the liability for improper conduct seemingly falls squarely on the individual. Syndicate Bank’s CMD, S.K Jain was arrested for allegedly accepting bribes to approve a loan, while investigations are underway against bank officials at Corporation Bank and Dena Bank for misappropriation of funds. Punishing individuals will never bring a systemic change. The liability needs to be spread across the entire organization. This pushes the organization to create and implement stronger rules vis–à–vis oversight. Thus, in addition to penalties on individuals, punitive fines should be enforced on errant banks.When corruption begins to negatively impact the organization’s bottomline, you can be sure that Conduct Risk would be a top agenda item for the Board of Governors.

Second, the quantum of fines imposed should serve as a proper deterrent. Globally, banks are being penalized large amounts in fines and settlements – over $35 billion have already been levied as fines on major banks in 2014 alone. Let’s compare this to the few recent instances of Indian banks fined for misconduct. In July this year, RBI fined 12 banks a combined amount of Rs 1.5 crore for failing proper due diligence in the Deccan Holdings default case. ICICI bank paid the maximum penalty among the group – a princely sum of Rs 40 lakhs. Last year, in the much more serious Cobrapost sting on alleged money laundering practices rampant in the banking system, the RBI fined a combined amount of Rs 60 crore across 25 banks, with Axis Bank paying the maximum fine of Rs 5 crore–an amount which is a laughable 0.08% of its net profit for the financial year 2014. Such tiny fines provide little incentive for pushing more stringent risk management mechanisms. Let’s be clear, larger fines should not be seen as a sadistic method to ensure compliance. Large fines collected by the regulator can flow back into the treasury to be used in budgetary allocation for the welfare of the nation.

Third, a proper regulator, on the lines of SEBI for capital markets and IRDA for the insurance sector is needed for the banking sector. The central bank, responsible for setting the fiscal and monetary policy framework of the country can not be expected to use its limited resources to safeguard the interest of all stakeholders and police the players in the industry in accordance with rules. A dedicated regulator, in conjunction with the existing investigative agencies of the country will be able to enhance the robustness of the system.

While the Finance Minister (with an extremely displeased scowl) wants to ensure stronger risk management of banks, the Ministry would do well to implement slightly tougher measures to deal with misconduct – compulsory Risk Management courses are simply not enough. A healthy and strong domestic banking system is the obvious precursor to any “Make In India” vision. Consequently, banking frauds and misconduct will need to be associated with some real bure din for the perpetrators.