Page 43 - English Tehelka Issue 5 - March 15, 2018

PNB wants us banking
to believe that
fraud of over Rs
11,000 crore was

• Facing tax net Income Tax Deparment has banks, the scrutiny, monitoring and committed by interbank messaging system and
filed six charge sheets against Vikram Kothari disciplined deployment must be incomplete ledger entries, points to
in alleged loan defaults worth 3,695 crore ensured only through greater private some small-time a breakdown in checks and balances
participation in banks. According to managers. How and standard banking practices. The
him, there should be less public lend- apparent failure of anyone to notice
their shareholders protecting inter- ing to private sector and the mode to could such large the largest fraud in India’s banking
est of depositors,” Assocham said in a achieve that is to have higher private transactions take history until this January reveals a rot
statement. participation in the banking sector. in the banking sector.
It said that “The public sector He said more privatisation could be place bypassing Sunil Mehta, CEO, PNB observed
banks (PSBs), ironically, are slipping the way forward since there was no the surveillance that “Yes, there is a problem. We have
from one crisis to the other and there guarantee that better governance recognised it. We are in the process
is a limit the government can keep recommendations of banks, instead system? of fixing it up. We’ll see wherever the
bailing them out at the cost of taxpay- of privatisation, would be imple- loopholes are there. The people-relat-
ers’ money, even if it is the principal mented effectively. ed risk, we are going to mitigate.”
shareholder in these lenders,” it said. Bureau of Investigation (CBI) named According to court documents
The industry body said PSB senior CBI probe so far 10 other directors and officials as ac- by the CBI, Shetty issued a series of
managements spend bulk of their Initially, the Special CBI Court in cused in the scam. The Enforcement fraudulent Letters of Undertaking
time “receiving and implementing Mumbai remanded to police cus- Directorate has by far (till the time (LoUs), essentially guarantees sent to
directions from bureaucrats even tody three accused persons in the of publishing) searched properties other banks so that they would pro-
for innocuous issues. In the process, case including retired PNB Deputy of Nirav Modi, Mehul Choksi and the vide loans to a customer, in this case a
the core banking functions, includ- Manager Gokulnath Shetty, Single PNB at 39 locations. ED teams seized group of jewellery companies. These
ing all important risk mitigation and Window Operator Manoj Kharat assets worth Rs 5716 crore. letters were sent to overseas branch-
management, take a back seat. The and an authorised signatory of the The still unravelling story of how es of banks, thought to be almost all
problem has become more grave prime accused Nirav Modi’s group of the fraud happened, which includes Indian, that would then lend money
with banks adopting new technolo- companies. Besides these, the Central the alleged misuse of the SWIFT to the jewellery firms.
gies which can prove both boon and Shetty did so using the bank’s
bane,” it added. “Once the govern- SWIFT system to log in with pass-
Jaitley Blames auditoRs foR BaNkiNg fRaud ment equity in the banks is reduced words that allowed him, and in at
least some instances a more junior
below 50 per cent, there would be
much more autonomy along with RBi PaNel to PRovide Remedy official, to serve as both the person
Union Finance Minister arun Jaitley broke his accountability and responsibility foR BaNk fRauds who sent messages and as the person
silence on the PnB scam by delivering a stinging of the senior management,” Asso- who reviewed them for approval,
rebuke to the auditors and the management of cham said. according to court documents and
Punjab national Bank (PnB) for their failure to detect “The boards should then be truly tHe reserve Bank of india has announced the setting up of the a interviews with bank executives.
the 11,400 crore fraud. taking the policy decisions while the panel under the chairmanship of Y.H. Malegam, a former member of “The involvement and connivance
“supervisory agencies need to assess as to what CEOs would run the banks with full the central board of directors of rBi, to study the rising cases of bank of more staff members and outsid-
new system has to be put in place to detect irregular- authority, coupled with the com- frauds and set out a blueprint to curb them. ers at this stage cannot be ruled out,”
ities...should ensure that stray cases are nipped in the bud and they are mensurate responsibility, instead The rBi defended itself claiming that it had warned banks, con- said a CBI document submitted to
never repeated,” the finance minister made this observation at the 41st of looking towards the bureaucrats fidentially, about possible misuse of sWiFt system on at least three the court in Mumbai. After entering
annual Meeting of association of Development Financial institutions for directions,” it opined . Assocham occasions since august 2016. “The risks arising from the potential the transactions on SWIFT, the CBI
in asia and the Pacific. investigative agencies are questioning PnB Secretary General D.S. Rawat in a malicious use of the sWiFt infrastructure, created by banks for their documents said, Shetty, who worked
employees for colluding with the accused. according to the modus statement urged the Reserve Bank of genuine business needs, have always been a component of their at the same branch from 2010 to
operandi, PnB employees helped issue letters of undertaking (LoUs) India (RBI) to take the lead to “engage operational risk profile. We had, therefore, confidentially cautioned 2017 despite normal bank practices
to the firms without recording them in the bank’s books. These LoUs, with the industry in finding ways and alerted banks of such possible misuse, at least on three of regular rotations, did not record
essentially bank guarantees, were then used to borrow money from to do clean business in the entire occasions since august 2016, advising them to implement the them on the bank’s internal system.
international branches of other banks. financial sector, be it the public sector safeguards detailed in the rBi’s communications, for pre-empting Because PNB’s internal software
Pointing out the failure of the auditors to detect the scam, Jaitley or private sector banks or even the such occurrences,” the rBi said in a statement. system was not linked with SWIFT,
said, “What were the auditors doing? Both internal and external non-banking finance companies.” The new rBi panel will also study the reasons for divergence in employees were expected to manu-
auditors really have looked the other way or failed to detect.” He also Chief Economic Advisor (CEA) reporting of asset classification and provisioning by banks as com- ally log SWIFT activity. If that was not
said the supervisory agencies will have to introspect and see what Arvind Subramaniam has also pared to the central bank’s assessment and recommend steps to done, the transactions did not show
additional mechanisms have to be put in place. such instances of advocated more private participation prevent it. additionally, the committee will examine the role and up on the bank’s books. There were at
fraud have a direct and an indirect cost. Besides the direct cost to in public sector banks. Speaking at effectiveness of various types of audits conducted in banks in least 150 such fraudulent LoUs during
the taxpayers, there is an indirect cost as it impinges on the lending an event in Chennai, Subramaniam mitigating the incidence of such divergence and frauds. a seven-year period, a CBI official said.
capacity of banks. said while the government was going
for recapitalisation of public sector letters@tehelka.com

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