Arundhati Bhattacharya, chairman of the State Bank of India (Photographer: Simon Dawson/Bloomberg) 

Former SBI Chairman Blames Frequent Leadership Changes For PNB-Like Scams

Former Chairman of SBI Arundhati Bhattacharya today flagged concerns over the frequent leadership changes leading to a void at the top for months, and lack of handholding for the incoming chief saying these issues hamper the smooth functioning of state-run banks.

Speaking in context of the Rs 13,000-crore scam at the second largest public sector lender PNB, she spoke on leadership as a matter that needs to be looked into, but was guarded on other contentious topics like privatisation of state-run banks and the tussle between the Reserve Bank and the finance ministry over the powers of the central bank.

"In public sector banks, the leadership gets changed too frequently. Very often, there will be a time when the top man goes and for the next one year, nobody comes in because it takes time to do the appointments," she said.

It can be noted that recently, there has been a slew of changes at the state-run banks' top leadership and many lenders, including those under the prompt corrective action framework for high NPAs, have been headless for months.

Bhattacharya, who retired last October as the chairman of the largest lender after a career of over four decades, said a newly appointed leader also needs a "handover time" where he works alongside the incumbent.

Speaking at an event organised by IMC at Mumbai University, she cited the case of SBI's branch in New York, where it is mandatory for 45 days' "handover-takeover" and wondered how the chief of a large bank can take over overnight.

Without naming PNB, Bhattacharya said the recently discovered fraud is "unfortunate" and is the result of the lack of integration between the core banking software and the SWIFT messaging platform.

In the case of two "disparate systems" being used for the same task, there has to be a reconciliation at the end of the day, which was lacking, she said.

“Either they trusted people too much or they did not realise there was a gap over there. The fact is that (reconciliation) statement was not there. And that is how this fraud could go on for years without anyone detecting it because there was no record of this in the bank's books at all,” the veteran banker said.

She said PNB was using an older version of the CBS platform and was in the process of integrating it with SWIFT messaging when the fraud was perpetrated.

The nearly Rs 13,000-crore PNB scam, allegedly perpetrated by jewelers Nirav Modi and his uncle Mehul Choksi in collusion with a few officials of the state-run bank came to light last month, wherein the duo is alleged to have used a key loophole on the international trade finance front to defraud the bank.

They allegedly got letters of the undertaking without the required securities and also proper trade details in place.

Also Read: RBI Discontinues Letters Of Undertaking For Trade Credit For Imports

It has also started a slugfest between government and Reserve Bank with each blaming the other. The executive started it off, wondering how the duo could evade regulatory gaze, and the latter hit back saying its hands are tied when it comes to regulating and making state-run banks accountable.

Bhattacharya, however, refused to speak on any of the issues. When asked if privatisation is a solution, she parried a direct answer saying governance and risk management structures at the state-run lenders need to be looked into.

She was, however, quick to add that there is a "social responsibility" which PSBs are fulfilling and made it clear that she's against a "total dismantling" of the public sector.

She also said there is a need for the fiscal and monetary policies to be in sync and cited the example of countries like Greece which faced trouble because of a lack of cohesion within the larger European monetary union.

Also Read: PNB May Be Given 1 Year To Provision Against Rs 12,700 Crore Fraud

Stay Updated With Business News News On BloombergQuint