CBI chargesheet in PNB fraud: Usha Ananthasubramanian may have facilitated the continuance of scam, but how did it begin in the first place?

The Central Bureau of Investigation (CBI) charge sheet on the Rs 13,000 crore Nirav Modi-scam at Punjab National Bank (PNB), which picks the name one of the former CEOs of the bank served during the scam-period, raises a few questions. According to reports, the CBI charge sheet says Usha Ananthasubramanian and some other senior bank officials were in the know of the fraud, ignored the circulars and kept “misleading” the Reserve Bank of India (RBI) about the true state of affairs involving PNB Dubai and the Indian Overseas Bank, Chandigarh . “Yet they did not take any corrective action and remained silent spectators. This facilitated continuance of the fraud resulting in wrongful loss to the PNB," the CBI said in the charge sheet, according to the PTI report. There are a few questions that are worth looking at here: First, it could be true that the continuance of the fraud was facilitated by Ananthasubramanian, but what about the original perpetrators of the crime? Ananthasubramanian was PNB’s CEO between August 2015 and May 2017 while the scam began in 2011 as admitted by the bank management at the first press conference where it announced the scam. Between 2011 and 2015 there were two other CEOs for PNB—K R Kamath and Gauri Shankar. Were they asked about the Letter of Understanding (LoU) transactions by the RBI or CBI? If the charge is of ignoring banking rules, ie. prudential norms governing the LoU transactions, shouldn’t it apply to all? [caption id=“attachment_4364901” align=“alignleft” width=“380”]  PNB. Representational image. Reuters.[/caption] Second, the charge against Ananthasubramanian and other officials is for ignoring RBI circulars and responding to the central bank queries in a misleading manner since October, 2016. Back in 2011, when Nirav Modi first colluded with bank officials to begin the chain of fraudulent transactions using the now-infamous LoUs till 2016, was the regulator then blissfully unaware about of the problems in LoU-linked transactions? Doesn’t it mean that the government, the Reserve Bank of India (RBI) and various managements have, from time to time, failed miserably to guide the bank within the right risk-management framework? Third, what about all the other biggies in the banking system who committed the same mistake? There were many other banks who may not have linked their core-banking software platform (CBS) to the SWIFT software – a flaw that was used to his advantage by Nirav Modi  in the scam. Modi chose PNB to commit the fraud but doesn’t the charge of ignoring RBI norms apply to most other Public Sector Banks (PSBs) as well? Fourth, what was the motive of Ananthasubramanian and others mentioned in the CBI charge sheet for facilitating the fraud? Did they receive any kickbacks? The problem is that the PNB case is seen in isolation even now by investigators. This is clearly a systemic issue where risk management systems have failed when it comes to compliance. Merely passing the blame to the SWIFT software, its disconnect with the CBS system and Nirav Modi’s criminality won’t help. This is a cardinal mistake. PNB should be the trigger to overhaul the manner in which risk management systems function within the banking system. To see things in perspective, one needs to look at the figure of total bank frauds reported post the PNB scam. That’s over Rs 20,000 crore and include Rotomac scam (Rs 3,700 crore), and the Totem Infrastructure scam (Rs 1,394 crore). Of course, these are approximate figures since the quantum of fraud in each case is getting bigger, from the originally reported number, as investigators dig deeper into the mess. The hidden rot wasn’t visible till one major bank knocked the CBI’s door complaining of fraud.