A large number of employees in India believe that companies in their market often exaggerate financials and indulge in corrupt practices to achieve higher growth, according to the findings of a survey by global accountancy firm EY.
According to the EY EMEIA Fraud Survey, 80 per cent of Indian respondents believe that bribery and corrupt practices happen widely in relation to business.
EY, formerly known as Ernst & Young, found that manipulation of financial results is prevalent as 40 per cent of the respondents believe companies in their market often exaggerate financial performance.
"59 per cent opine that companies often report their financial performance as better than it is," the survey said.
"Businesses are operating in an exceptionally challenging environment," it said, adding management is under increased pressure to find new ways to grow their business.
EY partner (fraud investigation and dispute services) Arpinder Singh said: "The survey does indicate that there is enhanced awareness about ethical business practices and that acceptance seems to be setting in, though it may take time."
Around 67 per cent of respondents felt that India has been achieving economic growth which is slower than expected and economic sanctions are more complex and require greater effort for businesses to comply, it said.
Nearly 81 per cent said that managers are under increased pressure to identify new revenue opportunities, and 66 per cent believe that the pressure to venture into higher risk markets is high.
It further said that 59 per cent of the respondents deem offering personal gifts, cash payments or entertainment as acceptable.
Mr Singh said the overall sentiment which the survey brings about, borders on the reluctance to change old ways, traditionally thought of as acceptable ways of doing business.
"We have been witnessing a spurt of change being driven by regulators and this has undoubtedly made a positive impact on the Indian business environment," he said.
The survey was conducted in Europe, Middle East, India and Africa.
Is the RBI too soft on banks? -LIVEMINT - BY Ira Dugal
It is fair to question whether RBI is too soft on banks even when there is evidence of misconduct
Six top global banks will pay a record $5.8 billion in fines to regulators in the US and the UK for manipulating foreign currency rates. The fines are some of the largest ever imposed by financial sector regulators.
Along with the fines, came an admission of guilt. Four of the banks—the biggest in the foreign exchange (forex) business, accepted that they had spent years manipulating forex rates, which affected clients across the world in a market that has a daily turnover of over $5 trillion.
In a press release that accompanied news of the settlement, the U.S. Department of Justice said that traders used an exclusive electronic chat room and coded language to fix the benchmark exchange rate. They called themselves, appropriately (and perhaps a little foolishly), The Cartel. Membership to this chat room was by invitation only. The transcripts of the conversation in the chat room, which are available on the website of the New York Department of Financial Services, are eye-popping and would be almost comical if they weren’t linked to such serious manipulations. Here’s a sample.
A trader who was “invited” to the chat room after much discussion in 2011 was told, “mess this up and sleep with one eye open at night.”
“..if you ain’t cheating, you ain’t trying,” boasted another in a 2010 string of messages.
Another series of chats talked about building “ammo”, which appeared to mean accumulating large positions in a currency and then dumping it to move prices just before daily rates were fixed.
We could go on and on.
Instead, maybe we can use this opportunity to revive a debate on whether India’s banking regulator (the Reserve Bank of India or RBI) has been too soft on financial sector misconduct. The issue had come up in 2013, when a sting operation by a news portal, Cobrapost, revealed that private and public sector banks had flouted money laundering as well as know-your-customer (KYC) norms. Investigations followed and in June 2013, 25 banks were penalized and a total fine of about Rs.60 crore was imposed on them. The highest fine of Rs.5 crore was imposed on Axis Bank Ltd.
If you compare the fine imposed to the annual profits of these banks, you will know that the penalties were peanuts. That’s exactly how the then RBI governor D. Subbarao described the fines that are typically imposed on banks in India when misconduct is detected. Cumulatively, the Rs.60 crore was just 0.1% of the total annual profit of Rs.54,717 crore earned by these banks in the financial year 2013-14, the year in which the penalty was imposed. (The profit does not include that of Deustche Bank as data was not available.)
Some in government circles (including Rajiv Takru, who was the finance secretary then) had vehemently argued for higher fines, which would act as a deterrent for banks. Others, including banking sector insiders such as former RBI deputy governor K.C. Chakraborty, had hit back and said that fines are adequate. The purpose of the fine should be to “name and shame”, Chakraborty had said at the time.
But even that objective is rarely met when the RBI issues orders on misconduct of banks. A veil of secrecy is typically maintained and minimal details are provided on what banks and bank officials were up to. The regulator typically says that banks have been asked to take corrective action but the general public hears little or nothing about how their interests will be safeguarded or what to watch out for while dealing with banks.
Since the Cobrapost incident, there have been a couple of other cases where banks have been pulled up.
In July 2014, the RBI imposed a cumulative fine of Rs.1.5 crore on 12 banks in a case related to loans given to Deccan Chronicle Holdings Ltd. Little was revealed about what the banks had done in a case which involved outstanding loans of nearly Rs.4,000 crore.
On 29 April, three banks were fined Rs.1.5 crore each for flouting KYC norms. The fines appeared to be linked to a 2014 fixed deposit scam, but, again,the RBI gave few details.
Sure, there are one-off cases like the Syndicate Bank Ltd one in 2014 when the bank’s chairman, S.K. Jain, was arrested for taking a bribe in return for a loan. But that was a rare case and action came from the Central Bureau of Investigation rather than the RBI.
Going by all this evidence, it appears fair to question whether the banking regulator is too soft on banks even when there is clear evidence of misconduct.
Even if the fines are restricted, surely the regulator can be stronger in the message it sends to these banks.
There seems to be little justification in keeping details of the cases under wraps, except to protect banks. After all, won’t customers be better off if they knew the kind of misconduct that is possible? And won’t banks be more careful if they truly feared being “named and shamed”? Sure, maintaining trust in the banking system is systemically critical, but isn’t it worth asking if snuffing out malpractices is equally important?
The RBI would probably do well to think this through. Perhaps it should take a leaf out of the book of global regulators or even domestic peers such as the Securities and Exchange Board of India, which has been much tougher on miscreants in the capital market through enforcement actions and some fairly detailed investigation reports on cases of public interest like Satyam Computers and DLF Ltd.
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