With some major setbacks hitting the country in this lockdown period, Weekly speaks to Rundheersing Bheenick, former governor of the Bank of Mauritius. He shares his views on what or who he thinks is the main culprit in the State Bank of Mauritius’ woes and the role of the Bank of Mauritius as regulator and supervisor. He also gives his opinions about the troubles at Air Mauritius and about the meaning of Mauritius being on the EU blacklist. 
                                             
We are arguably going through the most harrowing weeks of our existence. How are we coping as a country?
We’ve known worse! My granny told us of the Spanish flu in one of her late evening after-dinner chats as we sat in the open veranda by the flickering light of a paraffin lamp, and I, for one, never quite grasped at that time what Spagnolle meant until I was mature enough to pore over its demographic impact. Even then, it was mostly just a statistic until the stark pictures of Covid-19 victims in the severely-affected zones across the world have driven home to us the meaning of a pandemic. It brings to the fore the primordial question of the very survival of the human species!

Apart from the Spanish flu, has our country ever been challenged to this point?
Yes, the depredations of malaria, the deprivations of World War II, the devastation of the destructive cyclones of 1945 and 1960, among others, were all matters of higher import which tested the resilience of this country and our people. Those were more harrowing times, as indeed were the racial riots which were the shameful prelude to the birth of our nation.

This time, Covid-19 has also been compounded by the grounding of our national airline, the dismal profit made by what once was a thriving state bank and we have been blacklisted by the European Union. How bad is the situation, Doctor?
The avalanche of awful economic and financial data now descending upon us — there’s worse to come, be sure of that! — and the Certificate of Proficiency in financial shenanigans just awarded to us by the EU is all predictable results of the systemic misgovernment, maladministration, and misfeasance, if not outright malfeasance, to which we have been treated since the fateful 2014 general election. Our electorate, in its wisdom, chose to install the malware in Government House. In such fertile ground, should we wonder how the virus has spread so rapidly and subjugated all our public institutions, regulatory bodies, and state-owned or state-controlled enterprises? We just wrote the book on how to blow up a thriving economy. The State Bank of Mauritius (SBM) and Air Mauritius are the first fireworks to mark our success as destroyers of economic value. As this governance-cum-financial-cum-economic crisis comes providentially wrapped in an unprecedented —and possibly unpredictable — sanitary crisis, spinners will be working overtime to show Pa moi ça, Covid ça!

The disaster at the SBM precedes Covid-19. As a former governor of the Bank of Mauritius (BoM), did you see what happened at the SBM coming?
The short answer is a categorical, Yes. I began to have fears about the bank and the direction where it was heading when they sent Mr Reddy packing sometime in 2015.  This man, with strong support from the major shareholder, is the recognised architect of the modern SBM building on its earlier iterations in its first fumbling decade. The rot began like fish, from the head. And it continued when top executive positions were filled by controversial characters whose banking trajectories were dogged by multiple allegations of malpractice, some within the SBM itself, and at least one was allegedly out on bail awaiting judgment on a bank-related matter in another jurisdiction. The rot proliferated when the board of such a systemically-important bank as the SBM, and its holding company, was stuffed by individuals who, in terms of their executive background, range of knowledge and skills and relevant experience could hardly be expected to (1) do strategic planning, (2) keep oversight of loan quality, (3) establish risk parameters, (4) ensure the independence of such key internal functions like audit, compliance, and risk, and (5) hold management accountable generally. The stage was thus set for a spectacular bust-up. It was just a matter of time. The time-bomb was ticking away.  It leaves me wondering whatever happened to the robust process which I had run in, and which I thought had taken root at the central bank, for the conduct of the mandatory fit and proper screening for such positions before giving the BoM’s approval.

Fit and proper or not, a number of managers and board members were drawing huge salaries and almost unlimited fringe benefits as seen from the audited accounts. Is that a major contribution to the downfall of the bank or just an aggravating factor?
The bank has become an outlier in the cost-income ratio, a key parameter which captures the dimensions you are raising and which enables interbank comparisons. The bank’s efficiency and competitiveness have both declined. Salaries and perks are also outliers — why else would professionals leave private-sector jobs to join the SBM? But I wouldn’t put salaries and perks as a major factor behind the current bust-up. In my book, the culprit is the governance deficit. You’ve heard of the twin deficits: fiscal deficit and balance-of-payments deficit — bone up on these as they’ll make headlines soon, too.  This governance deficit is absolutely inexcusable. It reflects a complete absence of any semblance of sens de l’Etat in our decision-makers. It is grounded in a poor understanding of the critical role played by this bank — and, to a lesser extent, by the defunct Mauritius Cooperative Central Bank —  in revolutionising the banking sector in the country, opening up job opportunities in banking, from teller to board director, to the previously excluded and promoting inclusiveness. Many may not know that its creation was actually spearheaded by the BoM which lost in the process one of its board directors who didn’t support the move. There’s some irony, isn’t there, in the self-same BoM now bringing the bank to its knees by its negligence in its oversight role?

What exactly did the SBM fail to do that has resulted in the catastrophe we are witnessing today?
Banks are fragile institutions, prone to agency problems, insider dealing, kickbacks and so forth.  Directors at board level who fail to govern and exercise adequate oversight, executives who aren’t held to account, and checks and balances in the system that are over-ridden are at the origin of the SBM debacle. And, of course, the watchdog that didn’t bark. And the glaring gap in our corporate governance framework, which is crying out for reform to make state-owned or state-influenced enterprises as well as regulatory bodies not only less prone to be derailed by stuffing them with compliant stooges as directors or executives, but also more effectively accountable to all their shareholders and stakeholders. This is a matter of extreme urgency as the government deficit which I’m talking about has wreaked utter havoc in all institutions that dot this particular landscape in what seems to be a no-man’s land which is neither public nor private so that public or private accountability norms don’t apply. 

Who exactly should be held to account? 
The SBM, like all banks, has procedures in place for the entire loan-processing function, from receipt of loan applications to their approval and subsequent disbursements. There are various levels of loan approval authority, depending on the size of the loan, the sector concerned, the status of the borrower and his banking relationship etc. The quality of the collateral is a key consideration. Big-ticket loans often go through a Board Credit Committee, which is an exception to the general post-2008 financial crisis rule that bank directors should only establish guidelines and not get involved in individual lending decisions. There is a parallel compliance function. Note that the BoM, as a regulator, must approve the nomination of compliance officers – which indicates the importance of this role in sound banking. There is an internal auditor with unfettered access to all lending files. It is the duty of the board to ensure that auditors and compliance officers work in total independence. External auditors can call for any document before they sign off the annual accounts. Lastly, a team of BoM inspectors spend several man-weeks scrutinising all bank operations for every licensed bank and their report serves as the basis for a key meeting between the top management of the BoM and the bank concerned. 

Do you mean that the BoM checks in detail the loan decision process?
Yes, and the process is such that responsibility for every stage of loan-decisions can be identified with pinpoint accuracy. This applies to all loans, including loans that went sour subsequently. This does not of course amount to a prima facie case of responsibility for the subsequent loan impairment/default. Additional evidence is required to establish any such thing. Insider complicity in knowingly extending loans to doubtful or overextended borrowers, especially if it concerns parties without any previous banking relationship with the lending bank, is not all that rare in the banking world. This is particularly true in recent years, of some large Indian banks, both public sector banks and private ones like ICICI, with their well-publicised high-profile defaulters like Nirav Modi, Vijay Mallya and others. 

Should the SBM not have known then to steer clear of such individuals? 
Unless the SBM executives and directors had been living in a cave, they would have run a mile or two before showering B. R. Shetty with our money. I hold the bank responsible for putting depositors’ money at risk, eroding shareholder value and dragging a premier banking institution into the mud and, with that, tarnishing further the reputation of our country. We must go behind the corporate smokescreen and hold still more responsible those who served on the board of the bank and its holding company. And the biggest responsibility of all must go to the party who nominated this shambolic board of directors and appointed executive management clearly not fit for purpose.

What is the responsibility of the BoM?
The BoM seems to have fallen asleep on the job or to have been obligingly looking the other way. I mentioned previously the various points where the regulator failed to do its job in line with the requirements of prudential regulation and supervision.  Because of this grave dereliction of duty, the prudential system was not allowed to work. As cousins, relatives, and other connected individuals  – never mind their integrity or their competence –  swarmed over the executive floor and into the boardroom, they effectively put out of action the circuit-breaker that could have provided safeguards, at the level of executive management and the board of directors,  to mitigate the risks of such disastrous lending.

What is your take on the situation of our national airline?
The quagmire in which it finds itself is tantamount to a vote of censure against the airline’s entire executive management, the company’s corpus of directors and the various sponsors who had placed such worthies in the plum jobs there in the first place. They have no business occupying the seats to which they have been undeservedly upgraded. The situation borders on a national catastrophe that threatens to transform our country into the equivalent of a land-locked country. Air Mauritius was a catalyst in our globalisation: a key player in opening up our country, the card-up-our-sleeve in negotiating air access rights and freeing us from dependence on foreign airlines, a springboard for our tourism and hospitality sector, and an enabler of global business. More than that, it used to be a source of pride for every Mauritian. It has now nosedived after prolonged turbulence that reportedly saw a cabin steward take over the controls. The culprits are the same usual suspects I hold liable for the SBM saga. “There are horses for courses, dear boy!” I am tempted to say.

What about Covid-19?  
The more you delve into the stupendous mismanagement at Air Mauritius, the more it looks like the airline has been hijacked by a bunch of escaped lunatics. And these lunatics occupy such a central place in current strategic planning and policy-making that the longest announcement in our very first Covid communiqués regaled a worried nation by telling us how Air Mauritius, with the support of the Ministry of Finance, was going to save the day — in our soon-to-be-in-lockdown country, with closed frontiers, to boot – by reducing fares and the price of duty-free booze! Did I hear you say gouverner, c’est prévoir, anybody? They must have been high on booze or some other illicit substance to lay such a monumental egg. Instead of flying to our rescue, it has plummeted like an albatross. Covid has grounded airlines all over the world, not just in Mauritius. Well-managed airlines, like the IAG/ British Airways group, have initiated a range of actions to minimise the fallout, contain the damage, lay off surplus staff, mothball part of their fleet, etc. while waiting to spring back after the Covid scare abates. Virgin is looking for a public sector bailout in Australia and the UK. South African is in dire straits. Internationally, Air Mauritius is now mentioned in the same breath as South African as the first to go to the wall. The 55 or so countries in Africa had a total of 61 IATA-member airlines in operation before Covid hit. In terms of management competence, this would, at first sight, place us second in this list of African operators, second from the bottom that is! Makes us real proud, doesn’t it? Air Mauritius had lost its way for some time. The fuel-hedging disaster may have been the great divide, turning the page on a creditable past. Stop-go routes, abandoning the premium travel sector to the competition, the wild goose chase of the so-called Africa-Asia corridor, rotating-door management, and incompetent board, an ill-considered aircraft acquisition spree — these were all so many chickens that were winging their way home to roost. Some were speaking in hush-hush terms of the crash-landing to come. Well, it has come as the resourceful advisers have now run out of creative ways of diverting/channelling cash resources from other state-owned entities into the rapidly-sinking airline.

What are your fears now after this grounding?
I fear Air Mauritius may be leading the way and pointing to the shape of things to come for the country as a whole. We’d better prepare ourselves to follow our airline down the chute as we come tumbling down in international league tables.  We’d give an arm and a leg to exorcise this grim prospect. But our current management does not hold out even the faintest glimmer of a hope for our country to rank among the better performers in the post-Covid world.

On the contrary, we have just been placed on the blacklists of the European Union as a money-laundering jurisdiction. Your comments?
Our handling of the offshore sector borders on criminal negligence. Our recent treaty negotiations with India – a key treaty supporting a large chunk of our offshore turnover – leaves one wondering whether our negotiators were not in fact holding a brief for the Indian side. They could hardly have been that incompetent! We’ve already touched earlier upon regulatory failings in the handling of nominations for the top executive and board slots at the second-largest bank in the country. These apply equally to its holding company, which derives over 75% of its income from banking activities.

How did we get on that list?
Let me turn to the shortcuts we took to wave a notorious Angolan suspected bank-buster through the regulatory filters to enable him to set up shop here. A quick refresher of the calendar of events is in order:

Our deputy prime minister unveiling his fail-safe Know Your Client (KYC) strategy for favourites by looking them straight in the eye and – surprise, surprise – our Angolan passed.

The lady installed at the State House as head of state rolling out the welcome mat for this suspicious character and bending over backwards to expedite his clearance by leaning on regulators while making free use of a credit card he so generously provided.

The top executive at the State House being gifted a luxury limo – or just its free use as, in the state of general murkiness surrounding the going-on at the Financial Services Commission (FSC), it’s still unclear which – with his own personalised number plates by the same benefactor.

The FSC, as the regulator, calling a rush board meeting with a freshly-installed doormat of a chairman to grant the approval. 

The presence at this FSC meeting of top officials from the Treasury and Justice departments who traded their watchdog hats to become facilitators. 

The failure to investigate this string of suspicious transactions, remedy the flaws and weaknesses revealed in the process and bring the culprits to account. 

The promotion of the FSC boss, who had displayed so splendidly the qualities our decision-makers were looking for, to the governor of the central bank tasking him with the oversight and regulation of banking and the attendant risk that this sector will also go down the sinkhole.

I could go on and trot out more cases, to say nothing of the plethora of rumours surrounding the beneficial ownership of some Offshore Management Companies (OMCs), especially those specialising in the murkier segment which other OMCs stay well clear of. Should we really be surprised that we’ve now been blacklisted? The only surprise for me is that it took them so long to do so. Heaven knows we qualified for it quite some time ago.  Something is rotten in the state of Denmark.