As Fraud Prompts Arrests, India Forms Panel to Avoid Scams
RBI set up a panel to study and recommend ways to prevent the increasing incidents of frauds in the banking system.
(Bloomberg) -- India’s authorities Tuesday expanded a crackdown to contain the fallout from the biggest banking fraud to hit the nation.
The Central Bureau of Investigation arrested five people associated with Nirav Modi and Mehul Choksi, jewelers that state-owned Punjab National Bank claims fraudulently obtained $1.8 billion in overseas loans, the CBI spokesman said in a text message late on Tuesday. Media reports say Modi and Choksi have both left India and the country’s foreign ministry last week said it may revoke their passports.
Around the same time, the Reserve Bank of India said a new panel, to be headed by Y. H. Malegam, will look into factors that have led to a jump in such incidents in banks as well as suggest measures needed to curb and prevent them. It will also study the effectiveness of various types of bank audits, the central said in a statement.
The banking fraud is expanding as more lenders disclose exposure to the allegedly illegal transactions by Modi. Punjab National Bank last week said it detected the fraud at a single branch in the nation’s financial hub. A few days later UCO Bank said about $412 million was at risk from the transaction.
Finance Minister Arun Jaitley said the supervisory agency needs to ensure that such stray incidents don’t become a common practice. The 10-member Bankex Index fell 0.1 percent as of 10:12 a.m. in Mumbai on Wednesday, extending this week’s loss, while the main equity index was up 0.1 percent.
RBI on Tuesday reiterated its confidential instructions and mandated the banks to implement measures to strengthen the SWIFT operating environment in banks within its stipulated deadlines.
Among those arrested are Vipul Ambani, finance president of Modi’s Firestar International Group, and Kapil Khandelwal, chief financial officer of the Nakshatra group, which is among Choksi’s companies.
--With assistance from Siddhartha Singh and Colin Keatinge
To contact the reporter on this story: Kartik Goyal in Mumbai at kgoyal@bloomberg.net.
To contact the editors responsible for this story: Arijit Ghosh at aghosh@bloomberg.net, Jeanette Rodrigues
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