Jaitley slams regulators, auditors for PNB fraud

New Delhi: Finance Minister Arun Jaitley on Saturday blamed inadequate oversight by regulators and auditors as well as poor bank management for the INR 11,400 -crore fraud at India's second-biggest state-owned lender, and said if needed the law would be tightened to punish fraudsters.

Speaking for the second time this week on the scandal enveloping Punjab National Bank, Jaitley slammed lack of ethics in certain sections of businesses and said multiple layers of auditing system chose to either look the other way or did a casual job.

Without naming either the alleged kingpin of the fraud, billionaire jeweller Nirav Modi, or PNB, he said it is "worrisome" that not a single red flag was raised when the fraud was perpetuated. Also, worrisome is "top management who were indifferent to what was going on or were unaware of what was going on," he said.

There were "at least multiple layers of auditing system which chose to either look the other way or do a casual job.

You had inadequate supervision," he said. "Therefore, I think who did what will eventually find out in the course of the investigation."

"Regulators have a critical function. Regulators ultimately decide the rules of the game and regulators have to have a third-eye which is to be open perpetually," the finance minister said.

"But unfortunately in the Indian system, we politicians are accountable, the regulators are not."

Frauds call for tightening regulations where they are lacking, he said. "The law would be tightened further, if necessary, to find out where they (fraudsters) are and what is the extreme action that law permits against such delinquent persons."

Jaitley said Indian businesses have to realise that it has to develop a habit of doing ethical business. "Those who deviate from that cause must always remember that the consequences will not only be commercial and civil."

The finance minister also ruled out privatisation of public sector banks as a response to the Rs 11,400-crore fraud hitting Punjab National Bank, saying the move may not be politically acceptable.

"This (privatisation) involves a large political consensus. Also, that involves an amendment to the law (Banking Regulation Act). My impression is that Indian political opinion may not find favour with this idea itself. It's a very challenging decision," he said.

On mounting NPAs or bad debts, he asked how much of them are due to business failure and how much because of diversions by companies. "Cases of wilful defaults are something which is much more than the business failure itself," he said.

The finance minister said periodic surfacing of bank frauds push to background the reforms and entire effort of making it easier to do business in India while the scars on the economy take a front seat.