Why Were RBI and SEBI So Helpful to Mehul Choksi of Gitanjali Gems?
The quantum of the Nirav Modi-Mehul Choksi (Gitanjali Gems) swindle increases every few days, it is rattling several skeletons in the cupboards of banking and capital market regulators. On 6th March, the Republic TV conducted a high-pitched debate about how the Reserve Bank of India (RBI), under its most high-profile governor, Raghuram Rajan, allegedly favoured the former finance minister by manipulating the 20:80 gold import scheme on 21st May 2014, just five days before the United Progressive Alliance (UPA) demitted office. 
 
RBI introduced the 20:80 scheme in August 2013 to rein in the current account deficit by restricting gold imports to only a few domestic entities/ banks, with strict norms linking import for domestic sales to the export performance. However, its May 2014 amendment suddenly allowed 13 ‘star trading houses’ and ‘premier trading houses’, which included Gitanjali Gems, to import gold and sell 80% of it in the domestic market.
 
On 26 July 2014, the Indian Bullion and Jewellers’ Association wrote an extraordinarily explosive letter to RBI governor Raghuram Rajan to say that by amending the scheme on 21 May 2014 (to allow ‘star trading houses’ to import gold even if they did not cater to exporters at all), The amendment, they said, had 'made some vested interests more equal among equals'. 
 
The Association openly alleged that several large players were indulging in ‘circular/fictitious export of gold jewellery’ which had been halted by its earlier circular; but insisted that genuine exporters were unaffected. Revealing the modus operandi of the export scam, the letter says: “India is an exporter of handcrafted gold jewellery which is (a) high labour- intensive industry. It takes anything between 15 to 90 days to process the jewellery before export. But those with different motives would procure gold, convert it into crude pendants or bangles or chains with the help of machines and export to Dubai the next day. In Dubai, it directly goes to refinery for converting into gold bars which are received and sold within 24 hours. The loss incurred in this operation is more than compensated by the trading in domestic gold.” The letter also alleged that certain private players indulging in this manipulation used to call the shots in the domestic bullion market and wanted the RBI governor to ‘make a prudent appraisal’ of its amendment in national interest. 
 
RBI apparently did nothing, not in 2013-14, nor in the four years after. Then, the NiravModi-Mehul Choksi scam exposed how the manipulation was not restricted to only exports; the duo has systematically siphoned off nearly Rs20,000 crore from Indian banks through fraudulent letters of undertaking (LoUs). It is important to remember that Jatin Mehta, of Winsome Diamonds, was also defrauding banks of Rs6,800 crore at the same time. He was given three long years after the investigation began, to flee to St Kitts in the Caribbean Islands. 
 
More importantly, Mehul Choksi was debarred by the stock exchange exactly at that time, after a stock market debacle, and had openly given an interview to The Economic Times, where he said his group always enjoyed large non-fund-based limits from banks and was on the lookout for Rs1,000 crore more after he was hit by RBI’s gold import restrictions!
 
With this evidence in the public domain, RBI’s exact role needs an investigation. Did it investigate Gitanjali and Winsome Diamonds at all? What happened to the investigation? Why was it buried? By whom? Republic TV tells us that CBI now plans to investigate the gold scheme, but will it start with why RBI failed to act? 
 
There seems to be merit in Republic TV’s allegation about the UPA government link; but was there similar pressure on the Securities and Exchange Board of India (SEBI) not to investigate Gitanjali? There was a huge trading scandal on the NSE (National Stock Exchange) around that time and, yet, Gitanjali seems to have got away almost unscathed. Here are the details of that scam:
 
It is assumed that only companies with substantial investor interest are selected by stock exchanges for derivatives trading. That Gitanjali Gems was inducted into this segment is the first mystery. There was rampant manipulation of the shares in the cash and derivatives segment, from July 2011 to January 2012, allegedly in collusion with Prime Securities, a brokerage firm that was declared defaulter in 2013 after the Gitanjali stock price collapsed.
 
A SEBI investigation, based on a market alert, reportedly revealed that nearly 90% of the trading in Gitanjali was by 20-odd companies funded and connected to it, in complete violation of position limits set by the regulator.  SEBI found that disclosures to the stock exchange regarding shares pledged by the promoter group in the September-December 2011 period were at variance from the data obtained by SEBI from the share depositories.
 
NSE’s investigation covered cash as well as the large volumes generated in derivatives trading. Mr Choksi had apparently pledged his own shareholding with Prime Securities which, in turn, pledged the shares as margin with the National Clearing Corporation (NCC). Interestingly, 
 
Mr Choksi has publicly denied knowing the broker. It is a mystery how Gitanjali Gems’ shares were accepted as collateral in the first place. But when payment difficulties surfaced, the NCC ruthlessly liquidated the pledged shares triggering a downward spiral in the stock and a default estimated at Rs100 crore.
 
The Prime Securities debacle led to a detailed investigation, following which 26 entities, including Mehul Choksi himself, were debarred from all three exchanges, with the approval of SEBI’s surveillance department. 
 
Even after NSE submitted its investigation reports into the Prime Securities episode, SEBI was apparently in no hurry to take the investigation any further. In fact, according to insiders, the surveillance department only transferred the case of manipulation in the cash segment to the investigation department, while bigger manipulation in the derivatives segment was not referred to the investigation team at all. Who was responsible for slowing down investigations at SEBI? Remember, similar allegations had been made about several high-profile investigations during SEBI chairman 
 
UK Sinha’s long tenure. He was also given an extension by the NDA government. In any case, there was no action or investigation against Gitanjali from 2013 to 2017, although the company once enjoyed a market-capitalisation of over Rs50,000 crore and had caused huge losses to investors. Things began moving again in 2017, just 10 days after Ajay Tyagi took over as chairman. 
 
On 10 March 2017, S Raman, a whole-time member (WTM) of SEBI, passed a quasi-judicial order directing an investigation into Gitanjali for market manipulation as well as violation of takeover regulations in the process of manipulating stock prices. He wanted the investigation completed in six months.  SEBI insiders find this surprising, since such directions are usually an administrative matter. 
 
• Yet, in June 2017, despite a serious pending investigation, SEBI had all but cleared an initial public offering (IPO) of Nakshatra World, a subsidiary of Gitanjali Gems, subject to some disclosures. The IPO did not go ahead since the disclosures were not submitted, but it is strange that it even reached the final approval stage. Nirav Modi, too, had hoped to go public and raise funds to pay back Punjab National Bank (PNB) but got caught out. Had Nakshatra gone public, investors’ money would have helped continue the fraud for a lot longer. 
 
Why did SEBI bury the investigation since 2012 and resurrect it internally in 2017? Was the SEBI top brass also taking instructions from the finance ministry or were there some other pressures? 
 
The fact that both, RBI and SEBI, have been shockingly derelict in their duties with benefits to the same jeweller does not appear to be a mere coincidence. Nor the fact that Gitanjali Gems was included in the derivatives segment and its shares accepted as collateral by the National Securities Clearing Corporation. Was someone pulling the regulators’ strings from Delhi? Will the truth ever come out? 
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COMMENTS

Aqeel Qureshi

9 months ago

While the remaining part of the article is well researched, SD has this time (rarely though) given in to cacophony to create opinion rather than any constructive research. The 80-20 scheme and the analysis presented is squarely out from daily news papers and sensational channels like Republic.
Its quite disappointing to see SD doing this.

Udayshankar Vaddadi

10 months ago

I see a good amount of predisposed mindset by referring often to the years prior to 2014. What needs to be investigated equally is about how these 2 guys escaped neatly out of the country and what this 'hamara mehul bhai' could have done to fund 2014 elections along with the other 'bhais'......attacking RBI or 80:20 scheme is like trying to catch hold of straw while drowning.

T.c. Shivswamy

10 months ago

The fact is all financial institutions including RBI & SEBI are hand maids of industrialists & businessmen and there is no scope for the voice of common man,consumers,farmers and workers to be heard in the financial system , All the Boards of Directors of RBI and financial institutions are filled with very influential industrialists,businessmen and bureucrats which is the basic cause of financial indiscipline nurtured by our institutions. This is the outcome of our very liberal,luxurious democracy we are practicing. Citizens and the country has to pay the price for it.

Dayananda Kamath

10 months ago

The biggest fraud in gold banking happened between 2000 to 2005. Since non lost every one earned at the cost of the economy. No one is bothered. Even after collecting data from 86 bank branches which facilitated unauthorised gold imports. No action was taken by non of the govt authorities, and even media is ignoring even today. The buliion dealers who misused it with active connivance of bankers, nominated agencies, customs authorities, dgft , RBI, Ministry of finance, pmo, presidents office, every till date are ignoring it inspite of my reminders. Another case during same period is looting public fund to distribute to bullion dealers by reduction in charges.by misinterpreting sales tax scheme of Rajasthan govt. Which resulted in inter state gold smuggling. As 90% of gold imported was through Jaipur airport. Crores of revenue was lost. But no one interested to open the case.

Ramesh I

10 months ago

Since Jawaharlal Nehru's time as PM, businessmen have been exploiting the loopholes in our Banking systems, with a spate of scams having been unearthed over the decades. The Harshad Mehta scam was just one of the mega-scams which jolted the entire Banking system, and the Nirav Modi-Mehul Choksi one is just one of many to be exposed. There are many factors why unscrupulous businessmen manage to exploit the loopholes in our Banking systems. Firstly, RBI, despite being a statutory body mandated to regulate the Banking sector, remains a mute spectator to all major wrongdoings by Banks. Secondly, FM/FinMin continues to meddle in the operations of PSU Banks, hence the phoneline between South/North Block and Bank chiefs must be cut, to make PSU Banks more autonomous and accountable for their profitability (rather lack of it, perennially). Thirdly, RBI and FinMin must devise a mechanism to fix the systemic flaws in our Banking sector and make every PSU Bank more accountable for how they use their funds, with stringent internal & external audits, which would prevent, or atleast expose PNB-like rogue ops faster, curbing the damage. Besides all the administrative and operational flaws in our Banking systems, the root cause of all scams in our politicians (read powerful Union Ministers) who routinely interfere in PSU Banks' ops, to "persuade" them to offer huge loans (often without adequate collateral) to friendly businessmen. So, unless Banks are insulated from the politicians, nothing will prevent more such scams happening. After all, unlike their private sector counterparts, PSU Banks have the luxury of getting recapitalized with taxpayers' money by the Govt as and when required. So, the party can go on merrily forever.

shah j p

10 months ago

Money can do any magic in India.

Suketu Shah

10 months ago

Rajan(R3) was RBI boss =best friend of Chidambaram.Dr Swamy 's opinion about R3 has been vindicated again and again.

abcd xyz

10 months ago

Was Chitra Ramakrishna made to pay a price because she dared to investigate and debar Mehul Choksi. In the current case PNB was used to raise finance. Didn’t Prime Securities and N Jayakumar and FII help him raise finance then.

Vaibhav Dhoka

10 months ago

As wrote yesterday it is always Quid Pro Qoa action by RBI SEBi whose bosses become richer and public is always LOOSER by loosing in shares prices in case of collapse or government pumping funds to fraud banks,it is public at receiving end.

Mohan Krishnan

10 months ago

Will the truth ever come out ?
No. It is a systemic issue. Learn to live with this unpleasant situation without soiling your hands.

sunil

10 months ago

PIL must be filed if SC turns a blind eye

sunil

10 months ago

SC should take sue moto cognizance of these lapses on part of RBI and SEBI to show that it is proactive in public interest.SEBI is still considering itself above board,many shoddy companies in real estate are bringing IPO to pay off loans(similar acts of N Modi and Choksi),CAs are still signing shoddy balance sheets

Bank Frauds: Time To Put RBI in the Crosshairs
The Reserve Bank of India (RBI), as a banking regulator, is obliged to maintain the stability of the banking system and to ensure that it does nothing to engender a run on the banks through knee-jerk actions. In India, this has been interpreted to allow RBI to enjoy complete lack of accountability to the public, until its failure to initiate action borders on criminal negligence. 
 
What is worse, its policy of forbearance has led to banks operating like a cabal that has captured the regulator through multiple cosy relationships. The victims are we, the people. We are affected through increasing cost of services (to fund the losses due to bad loans), the regular failure of cooperative banks (failed supervision) and disruption caused by drastic action following every scam (failure of leasing and finance companies in the 1990s which hurt thousands of fixed deposit-holders).
 
And, yet, RBI remains comfortably protected in its ivory tower. It is not questioned for its failures (failed supervision of National Housing Bank, Global Trust Bank, cooperative banks and overseas corporate bodies). All these are dwarfed by the criminal neglect of the gigantic bad loan problem, which has been ignored and buried by three successive governors, even after the bank unions had begun to agitate about the problem and warn about the consequences. Individual officials have never been questioned for their inaction in half a century. 
 
Can this continue? At a time when the pressure to privatise public sector banks (PSBs) is mounting and the government has introduced a Bill to use depositors’ and shareholders’ money to recapitalise banks (Financial Resolution and Deposit Insurance Bill 2017), it is imperative that we demand transparency and accountability at the supervisory level as well. 
 
Plenty of individuals have been fighting lonely battles to shine the light on RBI’s inspection, supervision and redress mechanism; but, policy-makers are unmoved, even though bad loan figures are already mind-numbing.
 
Consider these. On 6th March, finance minister (FM)Arun Jaitely told the Rajya Sabha that loans worth Rs81,683 crore were written-off by PSBs in 2016-17 alone. While the FM claimed that these technical write-offs are for tax benefit and capital optimisation (and borrowers continue to be liable for repayment), this is mere eyewash. 
 
It is abundantly clear that recovery from loans written off, in the biggest cases that are now being sold under bankruptcy law provisions, is less than 20%. The losses are real and will eventually be paid by the exchequer. In fact, Dr KC Chakrabarty, former deputy governor of RBI, has repeatedly called such write-offs a massive scam.
 
These write-offs have burgeoned to unsustainable highs and are still mounting. Check out the third quarter results posted by six leading PSBs. Corporation Bank announced a stand-alone net loss of Rs1,240 crore (against a net profit of Rs159 crore in the previous comparative period); Central Bank of India’s losses increased to Rs1,664 crore; the giant State Bank of India reported a loss of Rs2,416 crore (its bad loans are a massive Rs1.99 lakh crore); Syndicate Bank’s loss was Rs870 crore, United Commercial Bank’s was Rs1,016 crore and Andhra Bank’s Rs532 crore. 
 
The losses are covered by the public exchequer through frequent recapitalisation of banks. This essentially means that the poorest Indians, who have no food to eat, are being deprived because taxpayers’ money is funding the loot by our biggest industrialists. The government has already announced a Rs211-lakh crore recapitalisation package for PSBs over a two-year period; but experts believe that this figure would eventually double. The Nirav Modi-Geetanjali and Rotomac scandal alone will add over Rs20,000 crore to the estimated Rs52,717 crore lost by banks to financial frauds in the five financial years from April 2013. 
 
Public anger over the ease with which businessmen have defrauded banks and fled India, while flaunting dizzyingly lavish lifestyles is extremely high. It is also clear that the government was clueless about the source of the loot, when it disrupted the economy with a painful demonetisation programme which yielded zero results. Here, too, the government is busy arresting junior officials, without attempting to fix the lax and non-transparent regulation, inspection and supervision structure. This structure has systematically thwarted every attempt by individuals to blow the whistle on mounting frauds. RBI ought to have been warning the government, instead of going along with an ill-planned demonetisation exercise that tied up precious resources and disrupted operations. Let me cite just three examples of specific whistle-blowing that were ignored. 
 
  • The chief vigilance officer of Punjab National Bank (PNB) had emailed RBI deputy governor SS Mundra and the Central Vigilance Commission (CVC) seeking a special investigation of the Brady House branch of PNB where the Nirav Modi scam was hatched. It was ignored.
  •  ZB Inamdar, a senior manager at Bombay Mercantile Cooperative Bank, has filed a public interest litigation (PIL), after a decade-long attempt to get RBI to act on detailed and specific complaints of large-scale corruption by the management. The Bank is now on the verge of collapse and Mr Inamdar was systematically victimised.
  • In July 2012, a Bank of Maharashtra (BoM) whistleblower, Devidas Tuljapurkar, raised questions about a Rs150-crore loan sanctioned to Vijay Mallya. He said, the credit approval committee headed by the chairman had altered all key sanction terms, including the loan amount, interest rate and security. Instead of investigating the complaint, RBI   forwarded it to the Bank in a manner that exposed the whistleblower who was then threatened with dismissal. It was only media coverage that forced the Bank to step back. It also ensured that loan exposure to Mr Mallya, which could have touched Rs1,000 crore, remained in check. Ironically enough, like PNB, BoM bagged the best-bank award at the prestigious BANCON that year.
 
The Corporation Bank officers’ union has long played the role of a strong whistleblower; but it was, eventually, defeated by government inaction and the Bank is now making huge losses. Even before the Nirav Modi scam erupted, the union newsletter had highlighted the sharp increase in bank frauds.
 
RBI’s failure to act on these complaints is particularly egregious, since it ignored many specific warnings. Moreover, it had framed a detailed process for reporting wrongdoing under the Protected Disclosures Scheme for private sector and foreign banks. PSBs are already under the CVC. This is in line with a Supreme Court order that top officers of private banks are also public servants and subject to the Prevention of Corruption Act and, hence, subject to CVC scrutiny.
 
Worse, it has used legal firepower to defy orders of the Central Information Commission (CIC) and the Supreme Court to release information related bank fraud, defaults and findings of inspection reports as well as action taken. The Securities and Exchange Board of India’s (SEBI) attempt to force immediate disclosure of defaults has been stymied by banks, apparently with support from the finance ministry and RBI. But what happens when the regulator refuses to act on complaints?  
 
It smacks of regulatory capture. This is already evident from the RBI’s silence over mis-selling of insurance, mutual funds and wealth management products, despite intense pressure from consumer organisations demanding action. In February, the Caravan magazine published an anonymous letter by a civil servant about how KMPG, a consulting major, was able to capture significant assignments by hiring children and relatives of government bureaucrats. A similar investigation into the progeny and relatives of RBI officials employed with banks and other regulated entities will reveal startling information. Is it any wonder that even the banking ombudsman has a pathetic record of redress? 
 
Bank privatisation is not the golden answer to the banking mess. This is because, while businessmen are busy cheating PSBs, private banks are busy cheating retail investors with rampant mis-selling of products and usurious charges. Putting the savings of the entire nation in the hands of private banks will create another set of problems. Interestingly, both these issues have the same roots: lax and corrupt banking supervision. When will the government put RBI in its crosshairs and launch a long overdue clean-up? 
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COMMENTS

Sudhir Jatar

9 months ago

To catch the junior-most for a fraud is the tradition in our governments. We are seeing it all the time. All grievance redressal mechanisms are nothing but post offices with the PMO's one as the Principal General Post Office. Each one of our complaints has been forwarded to the person who is responsible for not doing his or her duty. The person denies everything and the case is closed. This equally applies to Aaple Sarkar of Maharashtra Government.
I thought we had an out standing Governor a darling of the Press and the Indian Opposition Brigade in three Rs. Did it not strike him to reform the system especially when he was eying the top jobs in WB and IMF?

Dayananda Kamath

10 months ago

umber : PMOPG/E/2018/0074034
Name Of Complainant : Dayananda Kamath K
Date of Receipt : 16 Feb 2018
Received by : Prime Ministers Office
Forwarded to : Corporation Bank
Contact Address : Mangaladevi Temple Road,
P.B.No. 88,
Mangalore 575 001.575001
Contact Number : 08242440820
Grievance Description : Bigbankloot. Will the CBI RBI, ED, DRI, Finance Ministry, PMO,would like to investigate the scam from the following angle. Gitanjali Gems bailed out Corporation bank from its world cup tendulkar coin fiasco at a heavy cost to the bank. And many of the executives of the bank then have become heads of the banks involved in this scam. Even in Madhu koda scam where bullion transactions were there the bank involved had cmd from the same bank. Why Huge loss of crores of rupees to Rajasthan govt in sales tax scheme of imported gold is not being investigated. Why third party import lc for gold imports is not investigated. Why suddenly executives of midsized corporation bank became favourites to head big banks. Why CVC, RBi, and every govt authorities ignored the complaints registered with them and even continue to do it even now. These scams are bigger than what has come out. Will they wake up now
Current Status : CASE CLOSED
Your Feedback :
Poor
Date of Action : 19 Mar 2018
Details : Since this is not a complaint against Customer service we request. Since this is not a complaint against Customer service we request you to close the complaint.

If this is the way issues are closed no wonder there will be many more scams.

Amitabha Bhattacharjee

10 months ago

Is it required to bring RBI under regular audit by any parliamentary committee ?

T.c. Shivswamy

10 months ago

As we are managing the Railways as a mammoth institution we should merge all the Public sector financial institutions,banks into one Mega institution with an All India financial services cadre managing it and fix accountability and responsibility to root out this indiscipline in our financial system.

Gopalakrishnan T V

10 months ago

In sum and substance the fact remains that borrowers outsmart banks, banks outsmart Reserve Bank, and the Government outsmarts every institution and all the stakeholders of the economy Viz, the economy, banks, tax payers, depositors , good borrowers , the customers of banks and the general public suffer perennially and the looters enjoy merrily. Dont miss the opportunities to make money at every lapse of authorities is what is practised.

Dayananda Kamath

10 months ago

Yes A bigger third party lc import of gold was allowed by 86 bank branches as admitted by RBI itself to an rti quiry by me where they refused to provide volume and value of imports and other details sought. In 2000 as an internal auditor of corporation bank I submitted a special report that these gold import transactions being carried out by its overseas branch Delhi are violation of various guidelines as I remember I have given 13 reasons for treating it as irregular transactions. One of the GM told me you are internal auditor not a CBI investigator. All banks continued these transactions and
and I was rediculed for submitting the report. only in2005 RBI issued a a circular that it has observed such transactions and they are unauthorised. I immefietly wrote to the Governor RBI that these tranasctions are justified because similar transactions are allowed in import of silver and platinum. RBI issued after 10 days stating such transactions in all precious metals are unauthorised. But they did not initiate any action on violators. Nor even now. When I was hounded harassed and punished for bringing out such irregularities I reported the same to RBI. And RBI replied they are not interfering in internal policies of the bank. If a regulator do not come to the rescue of whistle blowers and supports violators such frauds/ scams will recur regularly and they have to be held responsible for the scam. If such treatment is given to auditors who report irregularities which auditor will report the irregularities. I have also posted in pgportal in response to Modiji call to auditors to walk the right path that they will be doing it at their own peril. No action so far. Then what moral right they have to blame auditors. Will they give justice to the auditors who have been condemned for bringing out irregularities.

MUKUND PHADKE

10 months ago

Common people understand corruption at much earlier stage , but highly paid salaried people understand much later.

Mahesh S Bhatt

10 months ago

Atleast Finance Ministry & RBI shouldnot spat in public & address with solutions after taking salaries Mahesh Bhatt

Ashwin Mehta

10 months ago

Many a times, banks are citing the telephone number of Zonal Office, but most of the time zonal managers are unapproachable. I am trying to contact Zonal office of Denabank under Mumbai Suburban, which is situated at Vileparle west in Mumbai and the no. is : 022-26142826. I am trying to talk to Zonal manager for the last one week for certain queries and its answers, but not able to talk to him, as nobody answers that phone. It has been dialled at different times throughout the days, nobody answers that phone. ???????? A Dena bank aggrieved customer.

REPLY

Dhananjaya Bhupathi

In Reply to Ashwin Mehta 10 months ago

GE Mehtaji! Pl visit the bank's website and try for mobile no. of zonal Manager with name. You can as well have his email ID.

SuchindranathAiyerS

10 months ago

The RBI is just the moribund bond maiden of the Government as are the judiciary. The source of crime and corruption in India are the Constitution, the laws and the Governments since 1947.

Dinesh Kudva

10 months ago

A strong whistle blower policy framework is to be adopted by all banks and whistle blowers should be protected rather than victimised. The Bank unions must be more pro active in identifying malpractices. The interests of general public and majority of honest and hardworking bank employees should no more be sacrificed at the hands of corrupt few.

REPLY

Dayananda Kamath

In Reply to Dinesh Kudva 10 months ago

You said it

Maganty Sai Rama Rao

10 months ago

We all must demand for action against the erring officials from top downwards like Mr Rama Chandra Raju of SATYAM.

Shrikant Dattatraya Sahasrabuddhe

10 months ago

Tag every concerned management person(from bottom to top)with the amount of bad loans processed by him and let them feel the heat of searching inquiries(including searches into individual wealth records)alongwith appropriate and stringent disciplinary actions .

B. Yerram Raju

10 months ago

A few things need to be urgently put in place to avoid disastrous future:
1. Stop circulating the modus operandi of fraud that is very likely to trigger innovation in fraudsters to take a deeper and safer plunge.
2. Let the Bank Boards be purged
3. Let not the RBI be part of any Bank Board
4. Let the RBI recraft its regulatory role
It is not in the interest of the nation that the central bank be put to guillotine test in public glare and therefore let the RBI form a Committee for self introspection with persons of high integrity with experience in RBI functioning.
5. Institutions like the NABARD, SIDBI would require a relook from the settled objectives in the respective statutes and if necessary restructure them.
6. Governance is critical and the Government has demonstrated its failure on this front ever since nationalisation of banks. Hence let the Government wind up the department of banking.
7. In the existing dual control mechanism, one regular would pit against the other for the malaise perpetrated in the system.
Stemming the rot before it stinks further brooks no delay.

Dhananjaya Bhupathi

10 months ago

Sucheta Dalal is successful in arriving @ the crux of BANK FRAUDS /SCAMS involving lac s of crores of Indian Rupees. Unless the GOI possess political will, nothing can be done. The link of Industry-Banks-Politicians is inter-dependent for their survival. Be it BJP, Congress TDP/TRS---all are one & the same. Everybody is bent on gaining easy money , not withstanding political affiliations. From technical point of view, What IBA Chairperson on failure of Audit, Inspections, Concurrent audits, etc., is true on the face of it. The nexus between Politician-Bankmen @ apex level and Industry is too strong to touch.

PNB Fraud: INBEF demands action against bank auditors, directors, top executives and RBI officials
Indian National Bank Employees' Federation (INBEF) has demanded stern action against auditors, directors, top executives of the bank as well as supervisory officials from Reserve Bank of India (RBI) in the Punjab National Bank (PNB) fraud.
 
In a statement, Subhash Sawant, General Secretary of INBEF, says, "The Government is avoiding framing rules and regulations for fixing accountability of chairman and managing directors (CMDs), executive directors (EDs), chief executives (CEOs) and directors on the bank board for their misdeeds and failures. In absence of such regulations public sector bank (PSB) boards can sanction or write off loans in crores without any hindrance. If they are made accountable for their misdeeds, then the Government will not be in a position to pressurise them."
 
"There should be a very scrupulous enquiry through a technical committee to go into the details of the reasons for failure (but not before such erring board of directors who should be kept out of the purview of such Committee), with some retired judge from the Supreme Court or High Court at its helm with highly experienced technocrats, who have no vested interest in the fraud under investigation," he added.
 
INBEF pointed out that some industrialists and economist are mooting the idea of privatisation of PSBs. It says, "Privatisation is not the solution for ending scams. We opine that privatisation is mooted to protect non-performing assets (NPAs) of large borrowers of PSBs and to divert public attention from NPA issue and to enable these banks to write off bad loans." 
 
Here are the demands made by the bank employee union...
 
1. As per the ‘Working Paper’ 505 on frauds in the Indian Banking Industry, Published in March 2016 the circular was issued by RBI to introduce the concept  of Red Flagged Account (RFA) and Early Warning Singles (EWS) for early detection and prevention of fraud, need to have robust credit appraisal system, efficient supervision post-credit appraisal system, effective recovery mechanism and continues monitoring.
2. The INBEF also demands requisite standards of Corporate Governance to curb 
a) the frauds increased due to new system of payment under Cheque Truncated System (CTS), increasing cyber frauds and guided use of credit system under Documentary Credit (Letter of Credit /Undertaking).
b) Under-reporting / ever greening of projects in infrastructure, power, mining sectors with high gestation period as the total NPA on PSBs and PVBs are on very high side.
3. The system  for Credit Delivery should be strengthened for accepting project with realistic face value at initial stages, earlier classification of bad debts, due diligence at every levels.
4. The involvements of third party agents/agencies are traced in such frauds and the agents like Charted Accountants, legal experts get easily escaped from accountability for want of any provisions in the respective laws. It is therefore demanded that there should be initiation of criminal suits rather than civil suits against such third party agencies if their involvement is established.
5. It is also demanded that various Audits and their functions under different heads be brought under C and A General Act to bring in their accountability and
6. On account of diverse credit portfolios and lack of credit expertise the Appraisal system and monitoring mechanism should be improved.
7. Quite often than not, in DRT or while recovery process is on, the legal reports on the properties mortgaged, do not come to the bankers’ rescue and the legal opinion are found not the strength of banker. Even the valuations Reports of expert valuers, inflated loans than realistic requirement especially by Chartered Accountants tailor-made project always misguide the bankers.
8. The acts of the fraudsters and willful defaulters should be treated as criminal offence.
9. The Banks under RBI should develop more powerful Internal Rating agency both internal and external which evaluates big ticket projects before sanctioning loan. And bank should obtain such reports on project from 2/3 independent IRAs.
10. In addition to KYC norms and KYE (Know Your Employees) norms the bank, under the guidelines from RBI should also develop KYM (Know Your Market) for effective and smooth execution so that the cases like PNB (Nirav Modi) would be minimized.                        
11. Some Industrialists and some Economist are mooting the idea of Privatisation of PSBs. The scale of recent Bank scams and potential losses faced by Banks holding NPA loans given to large companies and individuals is almost becoming an excuse to demand the privatization of PSBs. But 66 Economists have signed a statement stating” PSBs have played a critical role in financial inclusion, the project is still incomplete. Because of nationalization Banks have spread in Rural Sector and have provided credit to Agriculture, Small Farmers and Small Scale Enterprises. Before nationalization 35 Private Banks would fail every year.” Hence Privatisation is not the solution for ending scams. We opine that Privatisation is mooted to protect large NPA borrowers of PSBs and to divert public attention from NPA issue and to enable Banks to write off Bad loans.
 
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COMMENTS

Ralph Rau

10 months ago

Create 4 Big PSB Banks and audit them rigorously.

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