Finance Minister Arun Jaitley has expressed displeasure over the failure of the banking sector regulator and auditors in detecting banking frauds in time. He said that the political leaders are being blamed for the frauds but not the regulator or the auditors who are primarily tasked to oversee the functioning of individual banks and the banking sector as a whole. Meanwhile, the CBI examined Punjab National Bank (PNB) Managing Director and CEO Sunil Mehta and executive director K V Brahmaji to understand the procedure for issuing Letters of Understanding and how the fraud committed by Nirav Modi went unnoticed for so long. In yet another banking fraud coming to light, the promoters of Dwarka Das Seth International defrauded the Oriental Bank of Commerce (OBC) of is Rs 390 crore between 2007 and 2012 and fled the country in 2014. The bank informed the CBI about the fraud in August 2017. The CBI has now registered an FIR against the promoters of Dwarka Das Seth International. On Saturday, the Enforcement Directorate (ED) attached 21 more properties and assets of Nirav Modi, taking the value of such attachment of properties, assets and bank accounts to Rs 6,393 crore. The Ministry of External Affairs (MEA) has revoked the passports of Nirav Modi and his uncle and managing director of Gitanjali Gems Mehul Choksi. Earlier, the MEA had suspended their passports.
The quick succession in which three serious banking frauds involving top jewelers and other industrialists that have come to light indicate that public sector banks are sitting on a pile of similar frauds. Finance Minister Arun Jaitley's outburst at the regulator and banking sector auditors for not detecting the frauds in time is not misplaced. Since the public sector banks function in an autonomous manner, the role of the regulator and auditors assumes more significance because they are expected to caution the banks in time about any anomaly that they detect in the functioning of the banks. But as repeated cases of banking frauds have come to light within a span of a month, they go on to establish the fact that the banking sector regulator Reserve Bank of India (RBI) and auditors have failed to act as the watchdog of the banking sector. Their failure to ensure a fair banking system has cost the Public Sector Banks a number of frauds, some of which have come to light and many are still to be discovered. The Public Sector Banks together have a whopping Rs 6.5 lakh crore of non-performing assets (NPAs). The banks have yet not made public the entities who have taken these loans and failed to repay. In recent weeks some of these entities have grabbed media headlines just because these cases could no longer be kept under the wraps.
PNB has pegged the Nirav Modi-Mehul Choksi fraud at Rs 11,300 crore. Other estimates suggest that the fraud could be in the range of Rs 22,000 crore though Nirav Modi in his letter to the PNB management has said that his liabilities to the bank is less than Rs 5,000 crore. The ED has attached Nirav Modi-Mehul Choksi properties and assets worth over Rs 6,000 crore. Similar banking fraud involving Rotomac Pens' Chairman and Managing Director Vikram Kothari runs into Rs 4,000 crore. And the latest in the list, promoters of Dwarka Das Seth International has left the country three years ago after availing Rs 390 crore of loans from OBC. The bank is simply clueless how the promoters of the company have vanished from the scene with little knowledge about their whereabouts. The case of Vijay Mallya running away from the country without paying nearly Rs 9,000 crore of bank loans still haunts the public memory. The banks' delinquency in these cases of fraud has taken its toll on the Central government's credibility, with a section of the political parties blaming the government for providing safe passage to these fraudsters.
But as the Finance Minister has rightly pointed out, it's surprising that banking frauds of this scale have been occurring all the while and the RBI could not notice it. If RBI fails to detect and put a check on frauds committed by esteemed customers with the connivance of some bank officials, who will be responsible for the frauds? As the regulator of the banking sector, RBI needs to keep a watch on systematic and other failures in the banking system. The latest cases of banking frauds have clearly established the fact that RBI has not taken its role to keep a watch on banks' transactions, especially to smell out the fishy ones. The finance ministry and the government should take this opportunity to put in place systematic checks and balances that promise to detect the frauds at the very outset and makes banking frauds a zero-tolerance crime.