A deeper malady: on PNB fraud case

A deeper malady: on PNB fraud case

Context:

• Just after few days after news of the ₹11,500 crore fraud at Punjab National Bank broke, another different scam of a ₹3,695 crore wilful loan default has surfaced.

Why in news?

• The Central Bureau of Investigation has registered a case against three directors of a Kanpur-based company, and others including unknown bank officials, on allegations of cheating a consortium of banks by siphoning off loans disbursed to the company.

Similarity between two cases:

• The similarities lie in the breakdown in internal control mechanisms and in the supervisory failure at the banks.
• In the case of Kanpur-based Rotomac Global,  it had availed credit limits from a consortium of seven public sector bank and was used for a range of seemingly unrelated transactions including the import of gems and jewellery and the export of wheat.
• It took too long for the criminal complaints to be filed against the defaulters.
• In the case of the Punjab National Bank fraud, letters of undertaking were issued bypassing the bank’s reporting system; the three-tier audit failed to detect the malfeasance.

RBI’s failure:

• It is important to determine why the Reserve Bank of India, which is vested with keeping an eye on bank books, was unable to take prompt corrective action in this case.

Way ahead:

• Improvement in the functioning of the PSBs.
• Empowering bank managements and securing their independence from political interference.
• To restore the depositor’s faith in the banking system.
• The judiciary must ensure that prompt and salutary action is taken.

Conclusion:

• Rather than routinely reiterate the importance of strengthening corporate governance in public sector banks and promising to infuse greater professionalism, transparency and accountability, it is time the Centre, the major shareholder in these institutions, takes serious steps to translate this intent into action.