Nirav Modi's fraud case not a first for Punjab National Bank, it has been a sitting duck for decades

There is something about the Punjab National Bank that makes it attractive to scamsters, loan defaulters and frauds. And, in spite of being duped, it just refuses to learn.

Much, much before our Mehul (Choksi) Bhai and his nephew Nirav Modi unburdened the bank of nearly Rs 11,000 crore and counting, the PNB had found itself in a similar soup because of another high-flying businessman, the suave Rajendra Sethia.

The bank's Sethia to Modi-Choksi story spans almost 30 years. But, nothing about the PNB seems to have changed. It is still a ripe, rotten mango waiting to be plucked by those with smart brains and right connections.

PNB. Representational image. AP

Representational image. AP

I met Sethia a few years ago at a wedding in Delhi. Everything about him appeared to be the same since he burst onto the London scene in the 1980s as a suave, high-flying exporter with many banks on his borrow-from-us-please list. He still had a pointed moustache, a flair for smooth talking and passion for a good life, in spite of several bypass surgeries on a young but ailing heart.

During the 1980s, the crème-de-la-crème would wait for Sethia's invite to his parties. Apart from the good food and drinks, he had another thing to offer – pick up anything stocked in his godowns that were stacked with expensive shoes, suits, watches and, well, almost everything.

When he spoke, and he did very little, Sethia maintained he was not the financial fraud he was made out to be by banks, among them, please note, the PNB. After having spent months in the Tihar jail, for being accused of helping Charles Sobhraj escape in April 1986, he maintained he was the victim, not the accused.

But, the PNB may not have agreed. In the 1980s, the PNB allegedly advanced him crores of Rupees to run his company Esal, without securing collaterals. Later, the bank claimed, the loans were given on the basis of fake securities and far exceeded the net worth of his business. A few years later, when Sethia's business floundered, the PNB found itself in a soup.

History, for those who are daft enough to not learn from it, repeats itself with a brute force. The PNB is learning it the hard way by finding itself in a similar mess three decades later. Modi and Choksi, two diamond exporters as flamboyant and well-connected as Sethia in his prime, appear to have disappeared with money that is almost a third of its stock market value. The modus operandi is almost similar.

The bank issued the duo loans many times the worth of their businesses. As a report by Reuters points out, the bank issued a series of fraudulent Letters of Undertaking – essentially guarantees sent to other banks so that they would provide loans to a customer, in this case, a group of Indian jewellery companies. These letters were sent to overseas branches of banks, thought to be almost all Indian, that would then lend money to the jewellery firms.

How could just two employees help Modi-Choksi siphon off crores is incomprehensible. One, the banks have a system of transferring their staff every three years. If, as reports suggest, the same staff continued to issue these letters for seven years, there were others helping them occupy the same office for a long period. This couldn't have happened without the connivance of senior management.

Such big loans could not have been approved without the senior management getting involved. Transactions running into crores would have required the sanction and scrutiny of the senior management. They would have come to the notice of the auditors, both internal and of the RBI. How Modi-Choksi managed to swindle the banks in spite of all these checks and balances would amuse even Sethia.

The truth is, public sector banks just refuse to learn from their mistakes. Every few years, they get looted by frauds who exploit the loopholes that remain in place in spite of a litany of catastrophes. While the banks treat ordinary defaulters as criminals, they continue to roll the red carpet for high-profile borrowers who are politically connected because of pliant and corrupt staff and systemic failures.

In the end, the money that is looted from these banks belongs to the Indian public. The fraud is perpetrated on depositors and tax-payers. In any other country, these banks would have been brought to their knees by class action suits seeking both punishment and payback.

Unfortunately, in India, the only people who can bring banks like the PNB to their knees are tricksters, criminals and defaulters.

The Sethias, Harshad Mehtas, Ketan Parekhs of India would have agreed.

With inputs from Reuters

Published Date: Feb 19, 2018 12:25 PM | Updated Date: Feb 19, 2018 12:41 PM

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