PNB Fraud: New RBI Committee To Look Into Divergences, Frauds, Bank Audits
Reserve Bank of India is constituting a five member committee to look into large bad loan divergences, occurences of frauds and the effectiveness of various bank audits. In a notification on its website on Tuesday, the regulator said that this committee would be constituted under YH Malegam, former member of the central board of directors of RBI.
The committee also consists of Bharat Doshi, a member in the central board of directors of the RBI; S Raman, former whole-time director, Securities and Exchange Board of India, Nandkumar Saravade, chief executive officer of Reserve Bank Information Technology Pvt. Ltd. and AK Misra, executive director at RBI.
The committee has been created to “to look into the reasons for high divergence observed in asset classification and provisioning by banks vis-à-vis the RBI’s supervisory assessment, and the steps needed to prevent it; factors leading to an increasing incidence of frauds in banks and the measures (including IT interventions) needed to curb and prevent it; and the role and effectiveness of various types of audits conducted in banks in mitigating the incidence of such divergence and frauds.”
Referring to the Rs 11,400 crore fraud at Punjab National Bank, which came to light last week, the central bank said that it had warned banks thrice since August 2016 about potential misuse of the SWIFT network to defraud banks and advised them to implement safeguards to pre-empt such misuse.
In its Tuesday statement, the RBI reiterated its confidential instructions to banks and mandated them to implement the prescribed measures for strengthening the SWIFT operating environment in banks, within stipulated deadlines.
Jaitley Highlights Auditor Failure
While speaking at an event in New Delhi on Tuesday, Union Finance Minister, Arun Jaitley had said that the state will chase down whomsoever tries to defraud the banking system.
In his speech, Jaitley said, without naming jewelry designer Nirav Modi or PNB, that the bank management did not live up to its task as it failed to detect the delinquent. He also blamed auditors for not being able to catch the fraud early.
“Auditors have to look inwards as to why they are unable to detect irregularities,” said Jaitley. He added that supervisory agencies need to assess putting in place new systems to find those cheating banks.
Three companies promoted by Modi and three firms owned by jeweler Mehul Choksi had allegedly colluded with some employees of PNB to fraudulently access buyer’s credit (trade finance) without adequate credit checks. On February 5, the bank said it had filed a complaint with the Central Bureau of Investigation against the people involved. The initial complaint had noted the fraud amount at Rs 281 crore, however, on February 14, PNB disclosed that the amount was much larger at Rs 11,400 crore.
The CBI and the Enforcement Directorate have since then conducted various search and seizure operations across offices controlled by Modi and Choksi. The agencies have also interrogated employees of both jewelers and officers of PNB.