Punjab National Bank fraud: Punish culprits, fix risk management system, say industry bodies

New Delhi: India Inc on Friday called for swift and strict action against the companies who have allegedly defrauded Punjab National Bank, while expressing concern over the vulnerability of lenders.

PNB has detected $1.77 billion (about Rs 11,400 crore) scam where billionaire jeweller Nirav Modi allegedly acquired fraudulent letters of undertaking (LoUs) from a branch in Mumbai to secure overseas credit from other Indian lenders.

The alleged fraudulent transactions from a single branch of the bank show how vulnerable Indian banks, especially PSBs, have become, with a dangerous potential contagion in the country's financial system, Assocham said.

Punjab National Bank. AFP.

Punjab National Bank. AFP.

"The fact that an officer of the level of deputy manager, as is being reported in the media, could single-handedly wreck not only the country's second largest PSU bank but also several other lenders, shows how the risk management system is lacking in these entities and how a chain of command system was not there or was not followed,” said the chamber.

Moreover, it said, with the growing size of the Indian economy, the size of the banks and other financial institutions have also become large enough to leave a huge contagion, in case things go wrong.

“The PNB incident should open our eyes to the malaise and a huge gap that exists in building a fool proof risk detection and management.

“Ironically, even the RBI could not detect the problem well in time. After all, the RBI inspection is considered a routine affair in the bank branches," Assocham Secretary General D S Rawat said.

In a statement, Ficci without naming the bank said it "unequivocally condemns the illegal and unethical business practices adopted in the recent PSU bank fraud case".

"Fraudsters should be expeditiously punished in accordance with the law and Ficci supports the need for swift and strict action against those companies who have allegedly defrauded the bank," Ficci President Rashesh Shah said.

He added that the chamber defends the freedom of business enterprise but does not support illegal and unethical business practices.

Ficci also recommended that a thorough root cause analysis be done to plug the gaps and ensure there is no such wrongdoing that impacts the rightful functioning of any bank while discharging its duties to customers and stakeholders.

Rawat said the scandal has broken at a worst time for banks which are battling high non-performing assets.

“The PNB incident should not be allowed to shake confidence of depositors in the banking system. Such incidents would also make the public more apprehensive about the impending FRDI Bill,” he said.

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Updated Date: Feb 16, 2018 21:19:24 IST