RBI blames PNB board for fraud

RBI blames PNB board for fraud

News:

1. In written reply to parliamentary standing committee of finance, RBI blames PNB board of directors for nirav modi fraud.

Important facts:

2. RBI has  pointed out that Nirav Modi loan allocation is the failure of “three lines of defence” of banking system.
3. Three lines of defence

• First the officer sanctioning the loan
• Second is at the managerial level
• Third is the internal audit

5. RBI said that Public sector bank are corporation and not a banking company which do not directly come under the ambit of banking regulation act 1949.
6. The RBI reported that all financial institutions were warned about dealing with Letters of Undertaking (LoUs) procedure but it was not followed by PNB board.
7. The RBI also accused PNB for submitting a factually incorrect compliance report with regards to LOUs.
8. The RBI has seek for more power to monitor Public sector bank which include:

• Power for the removal and appointment of the CMD
• For Grant of licence and impose conditions.
• Approve appointment and re appointment or termination of appointment of chairman, managing director and         Chief Executive officer.
• To supersede the board of director.
• For making application for winding up of bank.
• Sanction scheme of voluntary amalgamation.