10 Point Agenda for rebuilding trust in Banking
Bad banking has now become major concern of the body democratic. The Rs11,300 crore fraud at Punjab National Bank (PNB) proved a saga of utter disregard to responsible banking. Ethics took hard beating and governance in utter disarray in the backdrop of unlearnt lessons of the similar past offences both within the bank and outside. It takes years to build reputation but only a few minutes to destroy.
 
When liberalisation era was set in, it was a green field for all the black money holders to turn it into white.  After digitalisation, year after year, volumes involved in frauds have only increased, notwithstanding the existence of internal Chief Vigilance Officer, external Vigilance Commission, system audit, risk audit, stock audit, concurrent audit, and annual internal inspections by the banks’ own Audit team, external statutory audit, forensic audit and the Annual Audit of the Bank by the Reserve Bank of India (RBI) approved Chartered Accountant (CA) firm. The PNB fraudsters successfully hoodwinked all of them. No wonder this gave lever to the FM for finding a scapegoat. Public concerns on recapitalisation of banks recently done by the Finance Ministry proved right. 
 
To top it all, the claims on PNB from other banks surfaced after the fraud came into open. It is yet to be known whether these are pent-up claims or claims of the latest letter of undertakings (LOUs)? The size of claim gives a clear indication that banks chose to wait till the bomb exploded on their face. All these banks got the same reply that they were wont to write to their aggrieved customers – ‘once the investigation is complete, we will look into addressing the claims.’ The reply hides many more questions in our minds.
 
Transaction wise, LOU is part of unfunded limit under Letter of Credit (LC). In the normal course, banks issue LC against either 100-150 percent value of collateral security or with full cover of term deposit. Buyer’s credit even if backed by LOU requires specific sanction of the designated authority. Since the disbursement will be in foreign currency, it gets through the NOSTRO account of the LOU-issuing Bank only after the sanction of limit is established. At the request of the importer the funds covered by the LOU will be transferred to the account of the exporter. SWIFT message has in-built authentication and therefore, the receiving bank does not seek confirmation from the issuing bank for allowing the transaction. In the case of PNB fraud all the processes herein are bypassed at will. In the instant case the LOUs seem cyclical in nature, settling every buyer’s credit with a new LOU. This short article does not intend to repeat what is already in the media and press regarding the nature and quantum of fraud in the Bank. 
 
Banks that used to have book of instructions as sacrosanct to follow by all the employees and officers in all hierarchies have consigned them to the key boards, post computerization. Work culture is sans business ethics governed by greed at the top and middle order. This two decade old trend cannot be remedied through compromised regulation and lax delayed punishments. Government’s basic responsibility in the current environment is rebuilding trust in the banking system lest the gradually built strong macroeconomic fundamentals would collapse sooner than later. Strong banking is a prerequisite to strong economy. There is imminent need for restoring confidence among the staff and customers. A few measures mentioned below may be the beginning.
 
1. A few suspensions are not enough. Let the purging start from the top. Stop all pensions for the successive retired Managing Directors and General Mangers of International Banking of PNB from 2006 the year from when the fraud had set in till they are absolved of involvement.
2. Continuance of the present Managing Director is fraught with risk of impartial inquiry but his continuation would be necessary to go in depth for the fraud. RBI should immediately form a Directors’ group (no more than 3 members) to run the Bank. 
3. All the discretionary powers of the top management should be immediately reviewed to ensure that the normal credit and investment operations are not hampered. 
4. Personnel policies relating to transfers, training, and placements should be overhauled and those Personnel managers/related officials who helped a few officials and employees stay put for beyond three years in a number of departments/branches and branches after 2009 should also be warned severely as such retentions could have complicity of the top management. 
5. Restore customer confidence with aggressive drive in all branches by ensuring that no customer’s genuine requirement is put on hold. 
6. Stop sale of all non-banking products like PNB Mutual Funds and PNB Life Insurance by the bank staff of all cadres. All the cadres of staff should be ordered to do banking only. 
7. Boost the morale of the staff at all levels through onsite short duration training programmes by peripatetic trainers so that delivery of all customer services would take place with smile on their faces and without the need for having to explain for the frauds of others to over the counter customers.
8. Balancing of all books and audit of all branches without interfering with the regular operations of the bank should be done to ensure that different types of frauds are not hiding. ‘A stitch in time saves nine.’
9. Replace the existing Board forthwith with persons of proven integrity and character.
10. Give the Board a clear time and framework to correct the malaise with accountability and transparency. Let this new Board function without fear or fervour. 
 
To borrow from Oliver Goldsmith:
 “Let not thy winged days be spent in vain,
  Where gone, no gold can try them back again.”
 
(Dr B Yerram Raju is an economist and risk management specialist. The views are personal.)
 
 
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COMMENTS

c babu challa

1 year ago

Beautiful ten point agenda. Please add, stop all miscellaneous charges being thrust on the customer to fill the frauds. The government nominees on the banks board are to be made responsible and should be punished aswell.

Mahesh S Bhatt

1 year ago

Good one but there are too many bad ones where do we go Amen Mahesh

Veeresh Malik

1 year ago

There are a dozen and more PSU Banks and Insurance companies in the shopping complex in front of my house. Add a few more private banks and wealth management outfits. The interesting thing here is that bottom-up, the same guards, office-assistants, scrap collection, garbage pick-up, water-supply and other such support staff have been in position for decades and generations. These are to some extent the people who have improved their skillsets to becoming literally advisors and consultants for all sorts of people in need.

Maybe this needs to be addressed too, it may have sounded romantic in the old days for people who slept nights inside banks to have become MgDirs and Chairmen on banks, but now these are also the weak spots.

My bank branch, for example, the support staff are the back-up go-to persons for passwords of absent staffers.

Malipeddi Jaggarao

1 year ago

Wonderful! It is not only PNB All Banks who camouflaged the fraud without analysing their Nostro accounts should identify the officials and bring them to the book. The links between the finance ministry and top executives should be be brought to the the book. Government should have the will power to tackle the issue in right perspective instead of defending the top officials. This should not be used for sinister designs for privatisation.

N.VRamani

1 year ago

well written.need of the hour.

Ramesh I

1 year ago

The list of measures should start with cutting the phone line between North/South Block (Delhi) and PSU Bank Chiefs/HOs. It's interference and 'persuasion' by FM / Min top bosses to PSU Bank heads which has caused this enormous NPA problem. If the top shots are made more accountable, automatically it will have a cascading effect down the levels. It's impossible that a Dy Manager level officer of PNB would've so much power to issue LoUs at will, without any internal / external oversight, without connivance of higher officials. Big businessmen like Vijay Mallya and Nirav Modi have strong political connection, but also bribe top-shots of Banks for 'easy money'. In fact, the systemic problems in PSU Banks is so deep-rooted that only privatizing them will eradicate them. Only when they are made self-sustaining (as opposed to being recapitalized with taxpayers' money, no matter how poorly they perform) will these Banks operate efficiently. To further its social welfare measures, Govt may retain 1-2 PSU Banks, but these too should be operationally autonomous, and overseen by an independent body, apart from RBI (regulator???). With constant political interference and without operational autonomy, none of the measures cited in the article will have any long-term effect on any PSU Bank.

U Rao

1 year ago

What is the work being done in public banks. What are the pay levels.

ksrao

1 year ago

Basic responsibility for building confidence in the banking system is supposed to be that of the government. This arises from the fact that the government owns the banks concerned. If not the owner, who else will create confidence in their own system. Let not the government wholly own the banks, or wholly discard them. There should be public-private partnership in the ownership of banks, with less than 50% of equity with the government and rest in private hands, so that responsibility for sound banking rests with both parties. Now the trend is for government to make good the losses with taxpayers' money, and for private businesses to loot banks because in any case government will take care of the losses. When capital erosion hits both, both sides will wake up and things will fall in place. Devising measures for the healthy functioning of banks is then a matter of detail.

Meenal Mamdani

1 year ago

Wonderful. I totally agree with the sentiments expressed.
The most important is the first point. It is not enough to stop pensions. GOI should attach all their assets and not release them until they cleared of malfeasance. Of course, the alternative is to execute them as China has done, but we are a democracy so that option is not available.
Until the responsible persons are not held up for public shaming, with their families denied credit and admissions to schools and colleges, whoever socializes with them is marked for investigation, etc. this rot in our system will not go away.
People are averse to inter-caste and inter-religious marriages but I have never heard of a parent refusing to marry his child to the child of a corrupt man.

REPLY

Mohan Krishnan

In Reply to Meenal Mamdani 1 year ago

One of the so called Union/Association Director of a PSB was my neighbour for almost 3 years. The tamasha he used to make made me furious. He had a Chauffeur driven Ambassador white car for the service of Saab and memsahib. His feudal culture was visible in his walking style, the way he used to look down on others and used to run quasi employment exchange for putting some good words of Nepotism for his friends (Clients?). Many times his friends used to knock my door by mistake.

Dilip Joshi

1 year ago

The way things are happening in banking sector are shocking. A common man will be in confusion whom to believe & to trust. All negligent employees who are involve in such scams must be punished such that others will not dare to involve in such scams. It is high time govt.to act stringently to punish the guilty.

REPLY

B. Yerram Raju

In Reply to Dilip Joshi 1 year ago

Time is the essence of action. Unfortunately the noise is forgotten when the dust settles down for years!!

V Ramesh

1 year ago

Somehow it is assumed that, in the public sector, suspension/stopping pension etc, is a severe enough punishment. The CEO of PNB should be put in jail right away, just as the government is trying to do with Nirav Modi. Vijay Mallya etc.

SuchindranathAiyerS

1 year ago

Indian Banking is a manifestation of Indian Governance i.e. Constitution, Laws, Judiciary, Neta-Babus and Cops. Whom to trust?

ramchandran vishwanathan

1 year ago

RBI must be dissolved & a new set of individuals must reframe the governing rules for all Banks. PNB Senior management must be sacked immediately & must be debarred from any employment for the rest of their lives

REPLY

Mohan Krishnan

In Reply to ramchandran vishwanathan 1 year ago

The role of Unions of Bank Workers and Officers is absolutely terrifying. They are one of the most immoral, corrupt to the core, rude and uncultured organisation. They should be rounded up under a new Bankasters terrorism Act.

Centre opposes PIL in Supreme Court on PNB fraud, says probe already on
The Centre on Wednesday opposed a public interest litigation (PIL) seeking probe into the role of PNB's top management in the Rs 11,300 crore scam and extradition of diamond trader Nirav Modi who is alleged to be involved in it.
 
Opposing the PIL, Attorney General K.K. Venugopal told a bench of Chief Justice Dipak Misra, Justice A.M. Khanwilkar and Justice D.Y. Chandrachud that FIR had already been filed in the multi-crore Punjab National Bank fraud case and a probe was going on.
 
As Venugopal rose to oppose the PIL, petitioner lawyer Vineet Dhanda urged the bench to issue notice to the Centre as the "kingpin of the scam Nirav Modi" had run away with the "common man's savings".
 
The court then witnessed some heated exchanges between Dhanda and the bench after Justice Chandrachud described the PIL as a "publicity oriented litigation."
 
"It has become a fashion if something appears in the newspaper, the court is moved," Justice Chandrachud said. 
 
"It is a publicity oriented litigation. You have to make averment that the government is not investigating. We must allow the government to investigate. These are the petitions playing to the gallery. Let us not pre-empt the jurisdiction of the government (to investigate a scam)," Justice Chandrachud said.
 
Taking exception to the observation from the bench, Dhanda said: "The Court is insulting me", and if the PIL was being seen as "something to gain publicity from" then he would withdraw it and let the court take suo motu cognisance of the scam and look into it. 
 
He told the bench that he had been practicing in the top court for the last 16 years and did not need to file PIL for publicity.
 
Telling the bench that the entire country was watching it, Dhanda said that the scam of such a magnitude has jolted the morale of the customers (account holders) and involves the interest of the country.
 
"If they (Government) are so efficient, why scams are taking place," Dhanda said, pointing to liquor baron Vijay Mallya leaving the country after making a Rs 9,000 crore hole in the coffers of a consortium of banks.
 
At this Chief Justice Misra told Dhanda to address the court on law. "We are hearing on law and not on emotions," Misra said pointing out that the Attorney General has opposed it. 
 
Dhanda said: "What he is opposing -- let him state in an affidavit." 
 
At this Justice Chandrachud said: "The way you are pressing your plea, the purpose is to gain publicity." 
 
Justice Khanwilkar asked Dhanda how he was arguing his plea in person. "Did you take the permission of the court for this." To which, Dhanda said that he was to be represented by his father J.P.Dhanda, who had fallen ill.
 
Telling the petitioner that court would like to hear the matter, Chief Justice Misra directed the next hearing to be held on March 16.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

 

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COMMENTS

c babu challa

1 year ago

The observation of the court that PIL is for publicity looks disrespectful. At the same time courts donot have emotions is well known and that is the reason so many cases are pending putting generations after generations in despair. FIR might have covered certain areas. PIL should cover the compensation to the innocent customers of the banks who are being charged to make up the loss. Where there is a will there is always a way.

CBI arrests PNB General Manager in USD1.8 bn fraud case
The CBI on Wednesday said that it has arrested a General Manager rank officer of the Punjab National Bank in connection with the Rs 11,300 crore fraud case.
 
"Rajesh Jindal, who was holding the charge of Brady House Branch Head between August 2009 and May 2011 was arrested on Tuesday night from Mumbai," a CBI official said. 
 
It was during Jindal's tenure at the Brady House the alleged fraud took place, the CBI officer said. 
 
Jindal was heading the second largest branch of the PNB when the practice of issuing the Letter of Understandings (LOUs) without sanctioned limits to diamond trader Nirav Modi's firms began. 
 
Jindal was presently posted as GM Credit at PNB's Head Office in New Delhi. His was the 14th arrest in the fraud case so far.
 
Since February 14, when the CBI registered the first FIR in the case, multiple raids at Nirav Modi and Choksi's residential and office premises have been conducted. 
 
The agency officials also said that they are questioning the executive director and general manager level officials of the Brady House Branch along with Modi's staffs and associates including Saurabh Sharma, who is President Foreign Finance Division of the Firestar International Pvt. Ltd. and Subhash Parab, Finance Executive.
 
Beside them, the agency officials would also continue to examine the executive level officials of Mehul Choksi's Gitanjali Group.
 
Earlier on Tuesday, the agency also arrested three employees of Nirav Modi and two of his uncle Mehul Choksi's Gitanjali group.
 
Nirav Modi's Firestar International firm's President Vipul Ambani, its Senior Executive Arjun Patil, and Executive Assistant and authorised signatory of the diamond merchant's three accused firms, Kavita Mankikar, were arrested after daylong questioning on Tuesday.
 
Chief Managing Officer (CFO) of Gitanjali group, Kapil Khandelwal, and its Manager Niten Shahi were also held.
 
The agency will now produce all six arrested since Tuesday before a court later in the day.
 
The arrests were made in two cases registered by the Central Bureau of Investigation (CBI) on February 14 and 15 against Nirav Modi and the Gitanjali group of firms respectively.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
 

 

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COMMENTS

B. Yerram Raju

1 year ago

No wonder PNB holds a large NPA ticket.

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