In effect, these "special" customers created unauthorised overdrafts in their own accounts with the banks and vanished with the bullion as well. Even assuming that the payment orders were honoured, there was no way the banks could have earned any extra income to justify their impatience!Banks do deviate from rules and take risks at times if they feel that by doing so it would help yield extra income. These are, however, managerial decisions taken at the highest level, but in routine clearing transactions nothing but patience should prevail.

The larger issue at stake is whether the public sector banks have the machinery in place to gather market intelligence on customers trading in bullion. Even a man on the street knows that bullion traders are not reliable and that the trade itself is dicey!It would, therefore, be interesting to know how and in what manner these banks had compiled credit reports on the bullion trading clients before taking huge exposure on them.

More often than not, credit reports on their clients are compiled by banks in a perfunctory manner only to satisfy their internal auditors. This is one area where bank managements will have to do a lot of introspection with a view to bringing about some sanity into the whole system of gathering market intelligence and compiling credit reports in a professional way. This is serious business and not a toy to play around with the internal auditors.

Against this backdrop, it is surprising that the banks found nothing wrong in handing over the bullion of huge value to their clients even before the payment orders were honoured by the clearing house. When public sector banks do not even accept bank guarantees and letters of credit issued by co-operative banks, how could they ever think of taking such a big risk with the payment orders issued by them.

The bullion scam surfaced because the payment orders were dishonoured, but the more important aspect that needs to be probed thoroughly is how long the banks have been following this irregular practice of handing over the bullion to their trading clients.As long as the going is good, no questions are asked and the higher-ups look the other way, but the moment something goes wrong, the authorities quote the rules and hound the officers. What, therefore, needs to be probed, is the origin of this practice and whether the higher-ups of these banks were aware of what was going on, and if so, what view was taken by them.

This should put at rest any speculation about who really the culprits are and who are not. Whichever way one looks at it, the unprecedented bullion scam was, without doubt, a direct product of poor market intelligence. It is, therefore, high time the Reserve Bank and public sector banks did some serious introspection to devise ways of revamping their intelligence gathering machinery, if they are really serious about avoiding scams of this nature.

(The writer is ex-senior executive of SBI and an Ahmedabad-based management consultant)