PNB fraud: RBI starts special audit of public sector banks

PNB fraud: RBI starts special audit of public sector banks

Context

PNB Scam

What has happened?

RBI has initiated special audit of State-owned lenders with focus on trade financing activities, especially relating to issuance of letters of undertaking (LoUs) by them

• In addition, the RBI has asked all banks for details of the LoUs they had issued, including the amounts outstanding, and whether the banks had pre-approved credit limits or kept enough cash on margin before issuing the guarantees

Major frauds & wilful defaults in: Trade Finance

Backdrop

In view of the recent Rs. 12,646-crore PNB scam, perpetuated through fraudulent issuance of LoUs with the connivance of the bank’s staff, it was pertinent for the regulator RBI to examine the issue of trade finance which also included issuance of letters of credit (LC) and LoUs

NPA scrutiny

The government recently asked the State-owned banks to scrutinise all cases of non-performing assets (NPAs) exceeding Rs. 50 crore for possible fraud and report the matter to the Central Bureau of Investigation.

• Pre-emptive action plan: Banks have also been asked by Finance Ministry to come up with a “pre-emptive” action plan in a fortnight to combat rising operational and technical risks, and assign clear accountability to senior functionaries