Questions aplenty as Nirav Modi pulls off a dramatic heist…

The big news is that despite the Reserve Bank of India’s (RBI) claims that public sector banks are well-prepared to deal with monetary frauds post the infamous Vijay Mallya fiasco, jeweler Nirav Modi has been able to dump the authorities by stealing somewhere close to INR 11,500 crore in driblets of foreign currency.  What comes as a bigger surprise is the fact that neither the internal auditors nor the people in power were able to unearth the fraud.

Sources suggest that Nirav Modi had obtained short-term loans from The Punjab National Bank through an instrument called Letter of Undertaking. (LoU). It is an instrument that let him avail loans in foreign currency without any cash margins or collateral security.  Nirav Modi, along with a couple of his associates, put the Letters of Undertaking on the SWIFT ( Society for Worldwide Interbank Financial Telecommunication) System without getting the same recorded in the bank’s core system. The SWIFT system is used for transferring funds across geographical boundaries.

What is even more shocking to know is that even the basic reconciliation of PNB’s nostro account (which is an account held by the bank in another bank. This account is generally held in foreign currency) was not carried out by the auditors. In normal cases, banks and its branches are subject to three major types of audit, which are the Statutory Audit, the Concurrent Audit, and the regular Internal Audit.  The question that requires an immediate answer is: How, on earth, did this irregularity go undetected for so long?

Senior Congress leader Kapil Sibal has questioned Prime Minister Narendra Modi’s silence on the issue. He further asked why Nirav Modi and Mehul Choksi were allowed to leave the country. According to a theory proposed by Kapil Sibal, the Prime Minister Narendra Modi along with the Finance Minister Arun Jaitley knew that “the country was being looted”.

 Going on a reckless arresting spree won’t do much good as the scam is deep-rooted. What would be interesting to see is the approach Public Sector Banks (PSBs) take in order to avoid such scams in the future.  There’s another question that’s equally interesting. Whether such a major scam could have gone unheeded in a private bank, say ICICI as private banks are believed to be governed by a considerably superior set of norms and protocols than PSBs.

 Thus far, it’s not clear whether Nirav Modi’s proximity to those in power helped him to bypass the existing set of security protocols, but problems such as these continue to ail the PSBs and not just PNB alone. The state-led financial sector is rotting away. It is a situation that goes beyond one lender or company. Looking at the sorry plight of PSBs, the industry chamber ASSOCHAM has called for privatizing PSBs as public sector banks are slipping from one crisis to the other.  It also tells us that the centre cannot afford to delay reforms in PSBs by even a minute.

 

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