Modi fraud may shake faith in Public Sector Banks

With passage of time, problems continue to grow and a day comes when there are no solutions in sight so the promoter starts sending money to safe destinations that is tax havens to be used when he has to leave the country and find shelter in another country.

Modi fraud may shake faith in Public Sector Banks

Brij Bhardwaj

The frauds, scams have their own momentum and logic and continue to hit headlines in newspapers and in electronic media irrespective of change of Government at Center or ruling party.

The pattern is same, companies and individuals build an image larger than life, thanks to image builders but business model if defective it soon start running into losses. These are covered by raising loans from banks or by holding on to payments for employees or dues of the Government.

With passage of time, problems continue to grow and a day comes when there are no solutions in sight so the promoter starts sending money to safe destinations that is tax havens to be used when he has to leave the country and find shelter in another country. The Government of India makes noises like cancellation of passports and finally extradition proceedings in the country where fugitive has taken shelter.

These proceedings continue for ages and so far the record shows that no one has been extradited from United Kingdom where they are living in luxury.

All of them get tipped off in time to leave the Indian shores. This was the pattern followed by Mr Lalit Modi, boss of IPL cricket league, Vijay Mallaya, boss of Kingfisher Airline and King of good times and now by Nirav Modi. The only difference is while earlier only the suspects left, this time the family and associates have been able to escape.

The other difference is the size of fraud has become much bigger that is 11,300 crores and as other banks check their books, more is expected to emerge. With Reserve Bank of India directing Punjab National Bank to honour the letters of credit issued fraudulently, the burden will have to be bourne by honest taxpayers , bank customers and share holders.

It may be noted with this nearly one third of capital of Punjab National Bank will be wiped out. The PNB has been receiving fresh induction of capital from the Government to improve its balance sheet.

The biggest worry is that with this there is danger of confidence and faith in the banking system being shaken particularly in case of State owned banks in India.

They are carrying burden of large number of non-performing assets and have been making serious efforts to clean their balance sheets under the new regulations issued by the Reserve Bank of India. The latest fraud will raise many questions about the working of State owned banks.

It is no secret that party in power exercises influence in appointment of directors for State-owned banks, who in turn try to favour their friends or associates by getting them favours from banks. This also can explain why state owned banks have large non performing assets as compared to private banks.

To check this many steps have been taken like multiple audits, checks by Reserve Bank and Finance Ministry, but obviously they have not worked.

It will be difficult for the political bosses to escape blame for current fraud. They may claim it started in 2011, but it continued for three years after they took charge in 2014. More so most of transactions have taken place in recent times. One can not overlook the fact that all three left country few days before the authorities could take action.

As such suspicion that they were tipped of falls on present rulers. The presence of suspect at Devos and in photograph taken with Prime Minister with Indian contingent has given more material to the critics of the Government.

There is no denying the fact that high flyers involved in these frauds have connections and links with politicians of all hues as such to reach the truth it will be necessary to hold an inquiry by a judge monitored by Supreme Court. In its absence finger of suspicion will continue to fall on present rulers.

In this case a judicial probe is necessary as unlike earlier scams this can shake the confidence of world community in our banking system.

India being a world traders has to preserve the faith and confidence in banking system which is essential for international trade and for smooth functioning of trade and industry within the country.

(Brij Bhardwaj is a veteran journalist and commentator)

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