Economic
Highlights
New Delhi, 19 February 2018
PNB Tarnished Fraud
STOP ROT, SAVE POOR DEPOSITORS
By Shivaji Sarkar
The banks are in dire need to save their
coffers. The latest Punjab National Bank (PNB) scam of Rs 11.4 thousand crore
is a testimony that the poor man’s savings are at the greatest risk.
It is strange that PNB so far has told the CBI
of a mere Rs 280 crore fraud. The rest are its assessment that the PNB itself
has to account for as transactions have hit several banks. The actual hit may
be much more. The fraud as per reports has been happening since 2006 and
possibly intensified since 2011. And none knew about it! How come, despite a
supposed lead in July 2017, the PNB kept it in wraps!
It is intriguing that while the key players, diamond
merchant Nirav Modi, his uncle Mehul Chokshi, Modi’s wife and other family
members fled the country in the first week January 2018, the CBI is told about
it days later and is able to file an FIR only on January 30. Fifteen days
later, the Enforcement Directorate and others seize over Rs 5000 crore assets,
including diamonds and fixed deposit papers from Nirav Modi establishments. The
assets are illiquid, subject to legal hassles and no succour for PNB and poor
depositors.
While the Government puts the blame on PNB,
it appears that the letter of understandings (LoU) used for short-term credit
on foreign shores for purchases of diamonds abroad had exposure to several
other banks, such as overseas branches of Axis Bank, Allahabad Bank and Nostro
account of PNB -- an account that it holds in foreign currency in another bank.
The PNB had honoured the claims until January 5.
Recall, in 1969, banks were nationalised and
many later, to save the poor man’s savings. It was hailed as a ‘socialistic’
equaliser as it was professed to prevent the large houses playing with public
money. The 1991 liberalisation and severe scams that deprived the banks, UTI
and LIC of billions proved that large players conversant with the loopholes always
had a free hand.
Additionally, it proved that the money once
lost to the public sector or for that matter any bank never comes back. Tardy investigations
and prosecutions lead virtually nowhere to recover the money that belongs to
the poor and banks fleece them all the way for operating their own accounts.
The banks have mastered the art of swindling for the profit of scamsters and
may be a large number of bank-related functionaries too.
The Indian society has to learn from its own
and western experiences how to move out of transacting through the banks. Let
us not forget that the 2007-08 severe meltdown was led by the US and European
banks, insurance companies such as the US government’s AIG and other financial
institutions. The sub-prime crisis pauperised millions in these rich countries.
So it happened during the late 1990s that hit the Southeast Asian tigers.
More less cash has turned out to be bigger
route to loot the people who put their money in banks and consider it to be
“safe and easy” savings and transaction mode. It is a global crisis and
operators are continuously at an advantage. The political players, mostly from
the poor and middle class, also need to be aware. The lobbies have got around
them to misguide and make them announce schemes which often benefit the
scamsters and malign the political system.
The key players in all such global crisis
have been the nexus of banks-stock market and master swindlers. They have acted
through the routes of power corridors even in the US and Europe said to have
strong regulatory mechanism.
It is strange indeed that a government does
not mind ruthlessly punishing poor employees, bank cashiers for the smallest
unintended mistakes, but lets the big players go scot free. This calls for a
probe also into the mis-utilisation of funds by autonomous institutions,
government organisations, which have been given liberal grants to never attain
the objectives. It has benefitted some top functionaries. This has been
happening for decades and includes very innocuously looking bodies that are
into education, mass communication and social innovation.
Thus, the PNB scam through alleged fraudulent
LoU issued by a PNB official in 2017 summer on which the bank also received
fees for three months, is shocking though has surprised none. The practice has
continued at least since 2011. While the bank is being blamed for embezzlement,
role of its internal auditors and even the RBI’s inspection team is under the
scanner.
During all these 12 years Nirav Modi and his
uncle’s companies have made large profits in the stock market but the bank’s
dues were never paid. It casts its shadow on the share market as well and the
linkages must be probed. How has the PNB allowed them to function without
getting the principal back?
There is an elaborate web of deception in the
Indian banking system. It exposes a weak-risk management practices and glaring
oversight lapses. Indian banks apparently have not learnt from the tightening
of international practices after the sub-prime 2008 crisis. Instead, Indian
banks opened up their coffers and as the Economic Survey 2016-17 says 50 houses
were responsible for most bank NPAs, now stated to be 82 per cent of the
exposure. Bank recapitalisation of over Rs 1 lakh crore to keep them afloat is
a tax on depositors.
The alarm bells are tolling. The biggest bank
SBI reported Rs 2416 crore loss a few days back. Many others have either
dwindled profits or are in losses. The PNB fraud is a mere symptom. It needs an
intense probe across the banks, including so-called private ones and financial
institutions to diagnose the malaise.
Most such corporate-linked frauds erode
assets, reputation of the country and impoverish the poor who have to suffer in
many ways. In the West, the depositors and pension fund insurers lost almost
all of it after 2008. In India they are suffering with less interest accruals,
higher bank charges and other hardships. Further, online banking has exposed
many of them to frauds.
Clearly, the entire banking system requires
to be cleansed. The Government must start the process and should not consider PNB
as an aberration. A detailed study and remedial procedures are needed. The
non-cash transaction for now at least needs to be contained to save the banks
and the poor depositors. It is a systemic need and the people be freed of
complicated linking with many documents. The aim has to be to stem the banking
rot and not punish the poor. All that glitter is not diamond.—INFA
(Copyright, India
News & Feature Alliance)
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