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Monthly Archives: March 2018

Cambridge Analytica Scandal – Is Data Privacy A Mirage?

Cambridge Analytica Scandal – Is Data Privacy A Mirage?

The unauthorized “harvesting” of personal data of over fifty million Facebook users by Cambridge Analytica is the latest in a continuing saga of data related scandals. Breaking his long silence, Zuckerberg apologized to his billion plus users worldwide and called it a “breach of trust” and vowed to take steps to protect user data. But the damage has been done.

As many averred, Zuckerberg’s apology inherently assumes Facebook users will continue to trust it and that all will be forgiven and it will be business as usual. That may well turn out to be true. But given the seriousness of this “breach of trust”, this may have serious consequences on its fortunes. One immediate fallout is the #DeleteFacebook campaign that quickly went viral. Also Facebook stock lost almost 9% in value.

Facebook’s supreme success rests on a business model built on profiting from customer data and its priceless derivative – customer insights. Notwithstanding Zuckerberg’s apology and promises to clean up, it is anybody guess if he will really follow up or implement only cosmetic changes.

This brings into focus the importance of consumer data in today’s data driven economy. It is common knowledge that vast amounts of data are being generated every day, particularly by social media users. Using sophisticated analytics, this data can be mined to yield powerful insights about users. In fact it is a common practice for marketing companies to use these insights to create a full behavioral personality profile or characteristics of an individual.

Products and service or even a political ideology could then be effectively tailored or custom fitted for that profile in what is called micro targeting. This data driven super customization has wide applications – in retail marketing, business espionage, political campaigns etc. It is for this reason that today data is seen as the most important resource and companies would do anything to get their hands on it.

Given the multiple use of this cutting edge knowledge resource born out of the confluence of technology and high end quantitative skills, it is indeed awing and worrisome at once. It is like a knife that can be used in the kitchen as well as to kill. The exploits of companies like Cambridge Analytica have justifiably caused disquiet among large sections of society.

Cambridge Analytica, like many other companies, are way ahead of the curve in using these precious insights in seeking to “change audience behavior”, or to generate  favorable outcomes in the targeted populations in a general election. Hence their popularity with political parties worldwide, including India.

As can be seen, there is nothing illegal per se in Cambridge Analytica’s business model. In fact all major corporations worldwide are engaged in exploiting data in one form or other for their bread and butter. But the illegal gathering of profile information of millions of users without their express consent is what is under scrutiny.

But what has been a rude wake up call for many is the fact that companies like Cambridge Analytica can potentially disrupt a democratic process like an election. Undercover videos shared by Britain’s Channel 4 News show how the company actively planted news – typically fake news in the “bloodstream of the internet and let it grow” to achieve desired social and electoral outcomes.

This it very much akin to what the Soviet Union was doing decades ago to brainwash its people. The distinctions between legal and illegal is often blurry and Cambridge Analytica and its ilk appear to have exploited it to the hilt. To confound the issue, in many countries, regulators have still not woken up to combat this malefic use of data.

The problem is indeed acute in countries like India where political parties have shrewdly worked off radar to use the services of Cambridge Analytica and its subsidiaries to “influence social behavior” in the election process. How far the election processes have been subverted is anybody’s guess. But it is equally futile to point fingers at the Congress party or the BJP since all of them have at some point in time used these services.  It is like the Democrats in the US blaming the Republicans because the Trump campaign used them in 2016. But it came back on the Democrats when it was revealed that they too – the Obama campaign in 2012 -had extensively used these services.

The scary part here is that the users whose data is being fought over, have practically no say in the matter because they have already shared their private information on the internet. It has left their hands and there is no way they can get it back. How this will be used and shared or who will use this is being decided by companies like Facebook who are primarily motivated by profits and not overly concerned about user privacy. That such breaches and data hacks occur regularly speak volumes of the gap between current laws and their rigorous enforcement.

And this will definitely not be the last of data breaches or breaches of trust. But the real problem is that we are confronted by an insurmountable issue here that threatens individual liberty and the inalienable right to lead a private, yet social life.

In the end, these social engineers who stole personal information of millions of unsuspecting users in reality turned out to be deadly data terrorists who deployed their stolen assets to disrupt cherished democratic processes and skewed election outcomes in so many countries at the bidding of their paymasters.

The bitter truth is that we live in a world where nothing is private.  Google, Facebook, Twitter, Amazon and any number of known and lesser known companies already know more about us than we can imagine. We have to reconcile ourselves to the fact that, however unpalatable it may be, data privacy is just a mirage.

The need for agile, yet draconian laws on data usage together with forensic monitoring of disposal of data has been repeatedly pointed out by experts in the field. Hopefully, the wait may not be long. Social media companies have long taken the naïve user for a ride. It is time they stepped off the roller coaster.

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Is It time For Structural Realignment Of RBI?

Is It time For Structural Realignment Of RBI?

The regularity of frauds at Indian banks has shaken the faith of the public in the banking system. The Reserve Bank of India (RBI) has attracted a lot of flak for the Punjab National Bank (PNB) fraud for the fact that it happened right under its nose and the fraudsters got away. Suggestions have poured in from well-meaning opinion makers and couch pundits – from replacing the RBI Board to privatizing the banks.

In this context, in what may be a rare occurrence, two governors of the RBI – one former and one current – hit the media spotlight and spoke about the issue.

Dr.Raghuram Rajan in an interview with a business news channel spoke more like a politician – all generalities and little or no specifics. He pointed fingers at the Prime Minister’s Office (PMO), conveniently forgetting that he was the governor when the fraud was being perpetrated.

On the other hand, Dr. Urjit Patel, the present governor, spoke of the need to privatize the public sector banks and appeared to deflect blame from the Central Bank. Many saw this as a response to Finance Minister Jaitley’s pointing fingers at the RBI for the scam.

RBI governors, in a time tested tradition, are known to be reticent and tend to shy away from media spotlight. But that may be in a bygone era and not in the new normal we all live in.

While there may be some truth in what Dr. Patel had said, the fact that he chose to speak at all on the topic and the timing were indeed bizarre. It is unclear why he chose to bring this up in public. Nor did Dr. Rajan cover himself in glory. The RBI and the Ministry of Finance, per an unwritten etiquette, never drop even the faintest hint of discord amongst them. This is because it has the potential to create turbulence downstream in the economy and could unsettle markets.

The RBI is a venerated institution that is deeply entrenched in the economy. In it’s over eight decades of existence it has requited itself extremely well. It has been at the forefront of expansion of bank branches and credit delivery. It had also played a pivotal role in the nationalization of banks in 1969 as well as in nurturing several developmental financial institutions.

To its credit, the central bank has embraced advances in technology to build a modern banking and supervisory infrastructure. It has adopted risk based supervisory model, a contemporary best practice in bank supervision worldwide. The key pillars of this model are a combination of onsite and offsite monitoring and greater reliance on backend data analytics to proactively gain insights into problem areas in the system. These early warning insights would enable the regulators to monitor banks better.

So, at least on paper, systems and processes were in place for effective supervision. Yet, the repeated occurrence of high profile frauds despite these innovations, only reinforce the common perception that the RBI and bank auditors have not lived up to the expectations of the country.

 The real culprit here, of course, is the fact that India’s institutions and enforcement agencies, despite constitutional and legal guarantees, have long been rendered toothless paper tigers by vested interests. That was done deliberately so that scams like the ones at PNB could be committed with ease.

But the deliberate defanging of the watchdogs or the ownership of public sector banks by government raised by Dr. Patel, are secondary issues that need to be addressed separately. They should not obfuscate the principal responsibility of the RBI in securing the banking system. Given the stature and dignity of the institution and office, it does them no good to pass the buck.

 Having said that, the truth however, is that the RBI carries an overload of functions and responsibilities that range from traditional central banking to other “developmental functions”. This was probably necessary in the early days after independence when the modern banking system was in its infancy. But today the situation is different.

Digital banking has rapidly taken root in every corner of the country today, thanks to technology and mobile phones. At the same time, it has also set the bar higher for customer expectations in convenient and secure delivery of banking services. This, in turn, has only accentuated the enormity of challenges in managing and regulating the burgeoning industry.

The fraud at PNB has exposed the vulnerability of the banks system in the new digital ecosystem. There are powerful lesson to be learnt here. Institutions that do not adapt and change with the speed of time risk becoming irrelevant.  Hence the need of the hour is a structural transformation of the Central Bank to meet the enhanced challenges in the new digital banking order.

It is certainly an opportune time to review and offload some of the regulator’s functions. One recommendation would be to carve out the Board for Financial Supervision (BFS) into a separate organization. The BFS was constituted 1994 as a committee of the Central Board of Directors of the RBI “..to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies …”. It enjoys enormous powers under the Banking Regulation Act, 1949. In the light of repeated frauds, the BFS must be reincarnated as a more agile and results driven body.

An expert committee could help with the finer details and setting up of this new entity. Suffice it to mention here that this new institution must rise well above the turf battles between the RBI and the Ministry of Finance. It must be on par with other institutions like the Election Commission of Indian (ECI) and the Comptroller and Auditor General of India (CAG) to prevent the institution from being bludgeoned into submission by vested interests.

But given the current preoccupations of the government, the much needed administrative reforms for governance may not happen in the current term of office. Many pundits and analysts believe that the Modi government may have already prepared a blueprint for comprehensive reforms that will radically change the civil, police and judicial services in India. Redefining the role and function of the RBI must find the pride of place in the administrative reforms that is long overdue.

Creating this new entity will show the government’s determination in delivering safe and secure banking services to all Indians.

 

 
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Posted by on March 16, 2018 in Banking, Economics, India

 

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Is the PNB Fraud Just the Tip of the Iceberg?

Is the PNB Fraud Just the Tip of the Iceberg?

Another major financial scam hit headlines in January 2018 involving “fraudulent and unauthorized” transactions involving letters of undertaking (guarantee) to Antwerp based diamantaire Nirav Modi amounting to over Rs. 12,500 crores at the Punjab National Bank (PNB). Initial reports have suggested that this originated at a branch in Mumbai where a manager allegedly took advantage of the incomplete integration of the bank’s core banking platform with the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network. The LOUs provided Nirav Modi access to huge foreign exchange loans provided by banks including the State Bank of India, Axis Bank, Allahabad Bank and Canara Bank. The diamantaire’s subsequent default on the loans blew the lid.

It is well known that the Banking industry all over the world, including India, is a highly regulated industry. Yet, with so many regulations and agencies monitoring it, Indian banks have been subjected to high profile, high value frauds with a regularity that is numbing. What is even more galling is the apparent ease with which the fraudsters seem to get away and live happily ever after. It makes us wonder if the authorities are really capable of providing a safe and secure banking environment for the people in India or are really just paper tigers. Whatever be the truth, the money has disappeared and there is little hope of retrieval.

This scam is reminiscent of the fraud that bought down Barings Futures Singapore (BFS) in the late 90s. Investigations had then revealed that Nick Leeson, a broker at the Bank’s Singapore office allegedly unbeknownst to the management, had entered into unauthorized speculative trading, that bought the bank down.

It is precisely to fix these types of frauds by lone wolves as well as risks arising from technology related issues that the Bank for International Settlements (BIS) brought out guidelines for enhanced scrutiny in the subsequent release of the Basel II guidelines. These robust guidelines have further been expanded in Basel III release and have largely succeeded in plugging these types of frauds worldwide. Like many countries, India too has mandated its banks to adopt these guidelines to bolster their risk management capabilities.

It will be instructive to look at the level of scrutiny banks in India, in particular, are subjected to. Firstly, each of these banks has their own set of guidelines for periodic – usually annual – mandatory audit of high value transactions both by internal as well as external auditors. This means, in the PNB scam case, at least ten internal and external audits of the five banks must have reviewed the same high value transactions of Nirav Modi at different points in time.

In addition, these banks themselves conduct periodic governance, risk and compliance audits that would specifically look into any operational or enterprise risks. Over and top of all this, the Reserve Bank of India (RBI) meticulously inspects the banks regularly. This includes on site as well as offsite surveillance of the banks by dedicated teams.

The million dollar question on everybody’s mind is how did the diamantaire manage to pull wool over the eyes of PNB and the regulators? The obvious answer is that the auditors and agencies appear to have been silenced by invisible hands.

A look at the data published by RBI is indeed telling. (Please see table below – Bank-wise and Bank Group-wise Gross Non-Performing Assets report published by RBI at www.rbi.org.in). The non-performing assets (NPA) or bad loans as a percentage of gross loan jumped from 6.55% in 2015 to 12.90% in 2016 and then to 12.53% in 2017.

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It must be mentioned here that loans take several payments cycles and considerable delinquency (non-payment of dues) and/or a default to be classified as an NPA. In other words, Nirav Modi’s loan accounts and consequent exposure to banks arising out of the letters of undertaking would have been in active audit and regulatory scrutiny for considerable amount of time before it became a hot potato.

The report itself points to the fact that RBI knew about this precipitous jump in NPAs at PNB in 2016 or even much earlier. This would have automatically raised red flags internally and triggered closer review by the regulator. There is absolutely no gainsaying the fact that Dr.Raghuram Rajan, the then Governor of the RBI, must have been fully aware of this scam.

As is the wont of such high profile scams, many questions, including the most obvious ones, remain unanswered. If data available in public domain was already pointing to almost doubling of delinquent accounts in just twelve months at PNB, what actions did the regulators take? Were they prevented from discharging their duties? If so by whom? What was the role played by the then Ministry of Finance?

At least some things can be deduced from the above report. PNB must have been aware of this much before the RBI or the Ministry of Finance were informed since they compiled and sent the data to RBI.  The RBI knew what was going on at PNB long before the matter became public. Hence the arrest of low level officers at PNB or the alleged lack of connectivity to SWIFT are nothing but scapegoats in what now appears to be a premeditated loot of public money.

The PNB executive management and the auditors cannot escape responsibility for their negligence and apparent inaction, for that is tantamount to abetment of this colossal crime. The need of the hour is to revamp the bank’s executive management and clean up its audit and compliance processes. PNB has to step up the transparency in disclosures and come clean on the fraud so the real culprits face the law.

Recent media reports have pointed to the involvement of a senior politician of the UPA regime in this scam. Fingers point to a former minister in the UPA regime who has also been at the center of multiple other corruption accusations. Given India’s post-independence history of corruption, this comes as no surprise at all. That the scam leaked into public domain is the real surprise if at all there is any.

Banking, as we all know, is a business built on trust and relationships. Repeated breach of public trust in banks in India are symptomatic of a deeper malaise in the banking system.  It is now incumbent on the government and it’s investigating agencies to get to the bottom of the PNB scam and book the culprits – be it lowly officers or the high and mighty political overlords and bring them to justice. Any delay will only widen the public’s trust deficit in India’s banks.

 
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Posted by on March 8, 2018 in Banking, Economics, India, Indian Economy

 

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Kanchi Shankaracharya Attains Siddhi

Kanchi Shankaracharya Attains Siddhi

The Shankaracharya of Kanchi Kamakoti Peetam, Sri Jeyandra Saraswathi Swamigal, attained siddhi on 28th February 2018 at the age of 82. He had earlier complained of breathlessness and was taken to the hospital where he attained siddhi. Millions of Hindus as well as his followers in India and around the world mourn his loss.

In 1954, the nineteen year old M.Subramanyam was anointed as the 69th pontiff of the Kanchi Kamakoti Peetam by his guru, the revered Sri Chandrashekara Saraswathi Swamigal. After the siddhi of his guru, he became the head of the Matam in 1994 and had since provided a unique combination of social and religious leadership that had endeared him to millions of his followers. The seer, well versed in traditional vedic scholarship, was also keenly aware of the fast changing socio-religious ecosystem in a developing India and swiftly adapted himself to the changes. He displayed from early on, a multi-faceted personality that went well beyond his traditional religious callings at the Matam.

PudhuPeriyava, as he was reverentially addressed by his followers, had shown keen interest in spreading the teachings of Adi Shankara to every section of the society. In this effort, the Kanchi Matam, like many other venerable Hindu religious institutions in India, has a glorious tradition of unmatched service to the community. His followers came from every walk of life. They included the rich and the famous, powerful politicians of every shade, the poor, Muslims, Christians, destitute folks and people abandoned by society.

Jeyandra Saraswathi Swamigal was always acutely aware of the sufferings as well as the worldly pressures on large sections of Indian society. For him, India’s true progress lay in uplifting these sections and he did his bit silently, often working below the radar.  As a Sanyasi, he was a pillar of support and succor to all of them. His demise, naturally, has saddened millions of people in India and all over the world.

During his lifetime, Sri Jeyandra Saraswathi Swamigal did not shy away from speaking out on issues that affected India at large. Obviously, this did stir up a lot of controversy. Following the footsteps of his guru, the Kanchi Seer too decided to meet these controversies headlong. But all along, he was laser-focused on serving the poor and underprivileged and did not allow the criticisms to deter him from his path of service.

Today it may be fashionable to speak of “inclusive growth”, but this Kanchi Seer had actually been practicing this for at least forty years. He had personally walked into housing communities of Dalits, fishermen, scheduled caste folks etc. in every nook and cranny of not only Tamil Nadu, but all over India. For instance his visits to the slums of Dharavi in Mumbai was well received by the residents there so much so that even today many have a picture of this great seer in their humble homes. This proved that in reality he was not just a religious leader to a small section of society as portrayed by many politicians and liberal media, but was the guru who had a pan Indian following.

The Shankaracharya was instrumental in opening innumerable free schools for children of the poor, irrespective of religion. Many of these schools also provide free food to the children. He had also established several hospitals for their welfare. Many of the super specialty hospitals he had set up now offer advanced treatments on a non-profit basis.

As mentioned, he was not a stranger to controversy. He had briefly left the Mutt in 1987, but returned shortly thereafter.  Later in 2004, much to the anguish of Hindus at large, he was arrested by the Tamil Nadu government on trumped up charges of murder. The case had dragged on, but the then state government headed by J Jayalalithaa could not prove the charges it had bought on in the court of law. Needless to say, the charges were dropped and the Seer and his disciple were acquitted.

It must be mentioned here that years later, Shri Pranab Mukherjee, the former President of India, in his memoir, has pointed fingers at the erstwhile UPA government, hinting that it was instrumental in framing the Shankaracharya for apparent political reasons. He has also written that in a subsequent Cabinet meeting he had vehemently opposed the arrest and disrespectful treatment of the seer.  The Seer’s arrest had left a deep scar in the minds of the Hindus since they perceived this as a wanton affront to their religious rights and freedom to practice their religion. Not surprisingly, the mainstream media in India had never raised a hue and cry about religious freedom or tolerance then.

The Seer was also instrumental in bringing together the leaders of Muslim and Hindu organizations to the discussion table to arrive at a negotiated settlement of the vexed Ayodhya Ram Temple dispute. Both Hindus and Muslims alike had admired the Seer’s pacifist approach and vowed to continue the discussions. It is indeed sad that the Seer did not have an opportunity to see the dispute settled in his lifetime.

Hindus at large have lost a true pillar of support , a sage who did not shy away from speaking up for them – be it conversion, Ram Janma Bhoomi , their right to manage their own temples or for that matter anything that encroached on the freedom of religion in India.

For the Dalits and the neglected sections of society – Hindus as well as non-Hindus, whom the politicians fashionably profess to court and serve – he was like a banyan tree – praying, caring and doing his bit for their welfare in every small way. For them the banyan tree of support has fallen and is indeed a colossal loss. Yet, life has to carry on and they will miss their beloved Swamiji.

The mantle at the Kanchi Matam now passes on to Sri Vijayendra Saraswathi Swamigal, the 70th pontiff. But the memory of Sri Jeyandra Saraswathi Swamigal, the 69th Shankaracharya of Kanchi Kamakoti Peetam, will linger on for ages to come. A widely admired and revered Swami is no more.

 
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Posted by on March 2, 2018 in Hinduism, India, Indology, Tamil Nadu

 

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