In his first official statement after the Rs 11,400-crore fraud at Punjab National Bank (PNB), finance minister Arun Jaitley on Tuesday said banking supervisory agencies need to assess what new systems have to be put in place to avoid such scandals in future. The minister posed some tough questions to both auditors and the management of PSBs and asked them to introspect as to why they failed to detect the fraud, the single biggest in the country’s banking history. Jaitley’s statement came after the finance ministry sent a letter to the Reserve Bank of India (RBI), asking whether there were any supervisory or regulatory lapses by the central bank in the fraud at PNB. “The first important question is with regard to lack of ethics that a section of Indian business follows and, therefore, it is incumbent on us as a state to chase these people to make sure the country is not cheated,” Jaitley said.
The second question is when society has invested so heavily in the banking system and when the Prime Minister at the Gyan Sangam said the government wants you to be really autonomous, the public-sector banks are expected to utilise that authority effectively and in a right manner. “You are found lacking when you are unable to check who amongst you were delinquent,” Jaitley said. The third important question was what the auditors were doing. “Both internal and external auditors really have looked the other way or failed to detect. I am sure the profession of chartered accountant itself, and those who control the discipline of the profession, will start introspecting and say what legitimate actions are to be taken,” he said. “And also there is an important challenge where the supervisory agencies are now to introspect as to what are the additional mechanisms they have to put in place to ensure that stray cases don’t become a pattern again.”
In its letter to the RBI, the government had said either the framework designed by the central bank to prevent and detect such frauds is inadequate or RBI is unable to ensure its effective implementation. PNB has said the fraud was caused by two junior officials who abused the SWIFT interbank system to issue letters of undertakings illegally to billionaire jewellers Nirav Modi and Mehul Choksi. Since they didn’t make corresponding entries of the transactions in the core banking system, it escaped scrutiny for long, the bank has said.