Gigantic fraud in Indian banking system - Early Times Newspaper Jammu Kashmir

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Gigantic fraud in Indian banking system

Omkar Dattatray

2/22/2018 10:26:52 PM

The scams and swindles are not new and have been there since the beginning of the time. Where there is law there is always someone out there trying ways to break it. PNB has been rocked by a 1.77 billion dollar scam where billionaire, Jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking from a branch in Mumbai to secure oversees credit from other Indian lenders. Three damning facts about the alleged PNB scam running into thousands of crores of rupees point to the pervasive rot in the banking system. Only two employees of a single branch of a bank have orchestrated a swindle that cost the bank ten times its annual profit. The fraud remained undetected for about six years in spite of mandatory checks and balances. The perpetrators of fraud and his family were able to escape weeks before the scam can be investigated. These factors are interconnected and point towards the systematic failure of various agencies at the highest level of financial and administrative hierarchy in India. One wonders as to how banks in India could be cheated and deceived for years when every transaction has to be accounted for daily at the end of business hours. Moreover, RBI is supposed to ensure auditing of every bank book and ledger. It was a difficult task when there was manual banking but in the era of computerization and centralized servers this lapse is almost unfathomable. Imagine just two employees of a bank were able to bankroll a fraud for several years. It implies that banks have an inbuilt mechanism that could be exploited. IBA chairman Usha Anantha subramanyan who was earlier managing director of PNB and is now heading Allahabad bank which is believed to have enchased some of the letters of undertaking issued by PNB. Now finance ministry has asked all the banks to review their systems and processes to make it sure that potential frauds are identified and corrective action taken if need arises. It is revealed that the software for international transactions done through SWIFT- messaging system that allows transfer of money across the world was not integrated with the bank's core banking system. It follows that while the banks' lending money on the basis of LOU issued by PNB thought their loan would be repaid by the banks, rogue employees ensured that transaction was not recorded. The million dollar question is how could this fraud go undetected for six years? LOUs are issued for short term funds. Did the lenders never approach the PNB for recovering the money lent? If yes, why did not the bank management noticed the scam? The pertinent question is as to how could just two employees a deputy manager and a clerk both very low in the ladder of management carry on with the fraud for five years? Were they never transferred, promoted or given different responsibilities as most banking employees are given is the moot question. Now noose has tightened around Nirav Modi - the super star of the scandal. For tracking the probe into India's biggest banking fraud, enforcement directorate, CBI, Income tax department, ministry of corporate affairs and ministry of external affairs took a series of steps to tighten the noose around the billionaire diamond merchant Nirav Modi and his maternal uncle Mehul Choksi following the PNB disclosure of Rs. 1500 crore fraud by Jewellers. Nirav's movable property worth Rs. 5100 crore was seized by ED and the CBI registered second FIR in the PNB scam. CBI conducted raids on 26 locations in six states including Udhampur (Jammu) on various properties of Gitanjali group of companies owned by Mehul Choksi for allegedly causing a loss of Rs. 4887 crore to the PNB. Three accused persons were arrested and remanded to judicial custody for 14 days in connection with the scam. The scam has consequences for the economy of the nation. Even the share markets have a down slide and the market value of the shares of Punjab national bank also got drastically reduced because of this scam. The CBI has mentioned three companies in the FIR; they are Gitangali Gems, gili India, and Nakhsatra brand Ltd. The CBI has also got Interpol notices issued to its member countries to determine the current location of Nirav Modi and his family members who flew out of the country in the first week of January. The CBI has formed a special team under the deputy Inspector general to probe the case. The ED probe has revealed that additional of Rs. 3000 crore was lent by seventeen banks to many companies belonging to Nirav. The Enforcement directorate registered another case against Nirav and his maternal uncle's company Gitanjali gems and continued with its raids on their offices and business locations. Diamond and gold worth Rs. 549 crore was seized on Friday during country wide raids. With this total amount of seizure has gone to Rs. 5649 crore. The ED has directed Nirav's companies in New York, London, Beijing and Macau not to transact any business till the probe is on. Not only this but income tax department has also swung into action and attached 29 properties and 105 bank accounts of Nirav and his family and companies. Besides this the prosecution in this case has been filed under IT Act and hearing has been fixed for Feb 27. Central bank said that it has already undertaken an assessment of control system at scam hit PNB and will take appropriate supervisory action. In a statement RBI has said that fraud in PNB is a case of operational risk arising on account of delinquent behavior of one or more employees of the bank and failure of internal control. The investigating agencies and RBI must act speedily to restore faith of common man in the banking system. In this country, everything is politicized and similarly multi crore PNB scam attained stronger political connotations with the BJP charging in senior congress leader Abhishek Singhivi alleging his family links with absconding billionaire jeweler designer Nirav Modi. Singhivi promptly denied the allegation and announced his intention to take legal recourse against BJP leader and defense minister Nirmala Sitaraman whom the BJP has fielded to take on congress. On the other hand congress accuses Modi government of instutionalizing crony capitalism. Kapil Sibal accuses PM Modi and his government of bringing the economy to its knees and warned that the Indian image will be dented internationally. He also alleged and took a dig at Modi that while he was dormant as the countries watchmen, thieves were fleeing with the nation's wealth. Is this the kind of ease of doing business which PM Modi talks about? The noted lawyer accused PMO and the finance ministry of turning a blind eye to the multi-crore bank scam. Thus has the scam being politicized. Without politicizing the case all the guilty should be prosecuted and punished and the money realized from them to indemnify the loss of the bank.

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