The breaking news of US $ 1.8 billion ( near Rs 12,000 crore) fraud at the state owned Punjab National Bank (PNB) has virtually opened up a can of worms after the racket, was busted involving diamond Tzar NiravModi . Celebrated diamond dealer NiravModi has show rooms in London, New York and Paris and brushes shoulders with the high and mighty.
Nirav was recently seen in photographs with the Prime Minister NarendraModi at the World Economic Forum summit in Davos in Switzerland thus raising his profile with traders and bankers allegedly flaunting his authority as being close to powers that be.
A lot of questions are being asked as to how such a massive fraud on a state owned bank could have been perpetrated when it has inherent checks and balances to protect the depositors and tax payer’s money. Some bankers believe that it’s an endemic fault with the IT system installed by the bank where the firewalls have failed miserably and the system’s security has been breached.
Others bankers, who did not wish to be identified , some of them senior executives in state owned banks , claim that firewalls are good and the system could not have been breached but for the connivance of the higher ups in the banks or political interference. It is common knowledge they say that with political interference it’s quite possible to get through to government circles and get ones work done. Even politicians wield under pressure from relatives or friends and became unsuspecting victims to frauds willingly or unwillingly. And in turn bank higher-ups yield to pressure from politicians.
Leading executive of a state owned bank, wishing to remain anonymous, howeversaid:“Without the connivance of the Finance Minister and MD of the bank nothing could have been achieved. When a huge amount is credited into a Nostro account, how can the bank feign ignorance that such a huge amount amounting to credit or debit went unnoticed? Making scapegoats of two junior officers seems an escape route for some higher-ups who were involved, he claims.
Assuming that this is true, he further claimed that is the bank so vulnerable that even a junior staff member can loot the bank literally to thousands of crores . This is absolutely dangerous, he said.
PNB in a statement to stock exchanges said it had detected fraudulent and unauthorised transactions Based on these transactions other banks seem to have advanced money to customers overseas, claimed the bank. The fraudulent transactions are allegedly linked to designer and jeweller NiravModi against whom CBI has registered a complaint as of January 28 2018. The bank first said Rs 280 crore were involved but further investigations by it raised the figure to Rs 11,400 crore or US $1.77 billion. The case relates to NiravModi and Gitanjali Gems.
Promoter of Gitanjali Gems MehulChoksi has dissociated himself from the fraud and asked for his name to be removed from the CBI’s FIR. He claims he does not have any dealings with the firms mentioned in the FIR. But are of them are suspects.
The modus operandi: PNB in its complaint with CBI says these firms – Diamonds R US, Solar Exports, and Stellar diamonds – approached the bank for buyers credit to make payments to overseas suppliers. As per the complaint, NiravModi, NishalModi , Ami NiravModi and Mehulchoksi, were partners in these firms. Choksi claims he has no dealings with Solar Exports and Stellar Diamond and had retired from Diamonds R US in 1999.
The LC, LoUs and Comfort letters are all part of a bigger scam involving the diamond trade as far back as 2011 which the then UPA government launched investigations on how banks had bled and government stripped of its rightful revenues through a fraud called infamously as “Round Tripping.” This tripping involved import of raw uncut diamonds from overseas markets such as Africa from illegal mines owned by war lords indulging in arms for diamonds trade that led to the coinage Blood Diamonds against which there is an international crackdown, , cut them in surat and export them availing of export concessions.
An astronomical amount of about Rs 30,000 crore was to be returned to state owned banks and they became non-performing assets putting them in the red and the diamond traders in the cold as they did not have the liquidity and white money to return to banks.
Latest figures available from banking circles show that an amount of Rs 18,943 crore has been reported as net loss by 21 PSU banks including leading SBI, IDBI, PNB BOI and Syndicate bank. SBI has reported a loss of Rs 2416 crore for the 3rd quarter of Financial Year 2017-18. Net loss is reported to be about Rs 18,093 crore after deducting profits in the same period. Losses : BOI Rs 2341 cr, Syndicate Rs870 cr, Andhra Rs 532 cr, IDBI Rs 1524 cr, Corporation Bank Rs 1240 cr, Allahabad Rs 1263 cr, Punjab and Sind Rs 258 cr, and Dena Bank Rs 380 cr.
“Most banks don’t have a proper information security policy and audit system. They have their own internal audit. Or, they get audited through their own known auditors”, claimed K Srinivasan, a former president of the CSI, who runs an NGO in Chennai called prime point foundation and sansadratna.
Strangely, the leading trade body ASSOCHAM has called for privatising all state owned banks following the PNB scam even though banks such as Axis, ICICI and HDFC, all private banks, came under government scrutiny for money laundering when demonetisation was undertaken by the government to fight terror funding. Some officials are alleged to have made millions converting black into white during demonetisation for a consideration which perplexed RBI as to where did the black money disappear.
The Congress led opposition has sought to take political capital out of the PNB scam linking PM Modi and his demonetisation move and questioning the saffron leaders silence on the scandal even as Defence Minister Ms NirmalSitharam shifted the blame on the Congress saying the origin of the scandal was the UPA regime headed by the then PM Dr Man Mohan Singh.
Congress President Rahul Gandhi termed as a “diversionary tactic” BJP’s allegation that he visited a Nirav Modi jewellery show. Broadening the scam, the Congress working committee claimed repeated frauds under the Modi regime had eroded people’s faith in the safety of their bank deposits. It said the escape of Vijay Mallya, Lalit Modi, Nirav Modi and Mehul Choksi, pointed to “complicity at the highest echelons of power”.
Rahul linked the PNB scam to demonetisation. He called it “strange” that PM Modi banned notes of Rs 500 and Rs 1,000 and put the entire money of the nation in the banking system while NiravModi took out Rs 22,000 crore from the banks and fled. “The PM teaches children how to write exams but he cannot tell people how NiravModi snatched Rs 22,000 crore from the common man. “
The Congress is right in holding the Union government to task. But it can’t just be about apportioning blame; because if the scam has indeed been playing out since 2011 then it is equally morally culpable. This is exactly the distraction that criminals use to escape indictment. And the laborious legal process—one of the indictments in the Mehta episode was handed out in 2016, 24 years later—only worsens the odds of quick justice, Padmanabhan says.
Both sides of the political aisle have to understand that fixing the blame and ensuring quick justice is only part of the solution. What the swindle at PNB’s Brady House branch has revealed is that there is a systemic crisis in the financial system. This needs to be fixed like as of yesterday; for which tough questions needs to be asked of everyone, including RBI. Failure to do so would mean just kicking the can down the road and waiting for the next news cycle of bloodletting and moral outrage, says Padmanabhan justifiably.
So its hightime Modi government swung into action and plugged all loopholes in the banking system and reduced NPAs of banks, brought to book who have fled the country and prevent future frauds in banks. People’s faith in the Indian banking system needs to be raised at a time when deposit interest rates are at their lowest, term deposits yield very little revenue to retired people but banks are bled by big time industrialists and business tycoons without being caught and escaping justice. The people watch TV debates helplessly unsure of their money in banks.>