PNB fraud might impact Narendra Modi govt's ease of doing business initiative: PHD Chamber

New Delhi: PHD Chamber of Commerce and Industry on Tuesday expressed concern over what it termed as the “crisis” triggered in the banking industry following the fraud detected in state-run Punjab National Bank. The $1.77 billion (about Rs 11,400 crore) scam in PNB involves billionaire jeweller Nirav Modi allegedly acquiring fraudulent letters of undertaking (LoUs) from a branch in Mumbai to secure overseas credit from other Indian lenders. In a statement, PHD Chamber said it is surprised how the bank’s internal audit system failed to detect anomalies in transactions leading to the alleged fraudulent loans given out to the borrowers. [caption id=“attachment_4360621” align=“alignleft” width=“380”] AP image.[/caption] Blaming the systematic failure of the internal audit system, President, PHD Chamber, Anil Khaitan said “the current situation is worrying for Indian industry since it may lead to unnecessary tightening of norms and procedures in raising capital from banks. This will in turn hurt the positive sentiment generated in ease of doing business. The chamber also appealed to the Reserve Bank of India (RBI) and the banking industry to ensure that genuine borrowers are not adversely impacted by this move. “What seems like a failure of a bank’s internal audit system and an isolated fraud as alleged should not be used to penalize genuine borrowers and their capital needs. The industry is on the threshold of a growth trajectory and any change in banking processes can have an adverse impact, said Khaitan. The PHD Chamber feels that instead of making changes in the loan seeking mechanism, stringent steps should be taken by the RBI to strengthen the banks’ internal audit procedures. It also appeals to the central bank to put in place technology driven norms and processes to ensure incidents like this one are not repeated and any loopholes in the system are plugged.