Stung by a flare-up of the crisis at Punjab National Bank (PNB), the finance ministry on Tuesday directed public-sector banks (PSBs) to scan their non-performing asset (NPA) accounts worth over Rs 50 crore for possible fraud and refer any such fraud cases to the Central Bureau of Investigation (CBI). The ministry has also given PSBs a 15-day deadline to take “pre-emptive action” to identify gaps and brace up for increasing operational and technical risks to the banking system. PNB has now revealed that additional letters of undertakings (LoUs) worth Rs 1,251 crore were issued illegally to Gitanjali group of companies prompted by jeweller Mehul Choksi, thus taking the size of the fraud detected so far to Rs 12,656 crore. Revealing the government’s “framework for timely detection, reporting, investigation of large-value bank frauds”, financial services secretary Rajeev Kumar tweeted: “CVO (chief vigilance officer) to vet complaint and coordinate with CBI for frauds exceeding Rs 50 crore; NPA cases above Rs 50 crore to be examined for fraud.” The secretary said the reported frauds in this whole exercise have to be examined for wilful default. The identification of fraud has to be prompt and action has to be initiated within prescribed time lines. Banks have to seek the borrower status report from the Central Economic Intelligence Bureau (CEIB) when accounts turn NPAs and the CEIB has to get back within a week, Kumar said. Enforcement directorate/department of revenue intelligence will have to be involved, if the situation so warrants.
On the deadline to strengthen systems, Kumar has also directed executive directors and chief technology officers of PSBs to “learn from best practices and pinpoint strategies including tech solutions”. He also asked the boards of PSBs to fix accountability of senior functionaries for compliance of the guidelines. Earlier this month, PNB said LoUs were issued fraudulently by one of its branches in Mumbai to firms of jewellers Nirav Modi and Choksi through the SWIFT interbank system, without making corresponding entries in its core banking solution (CBS), as was the procedure. Since both SWIFT and the CBS were not linked, such activities escaped tighter scrutiny, causing the massive fraud, it had claimed. Following the fraud, the central bank has directed all banks to link the two systems by April 30 and prevent such frauds from recurring in future.
Finance minister Arun Jaitley has already slammed auditors, bank management and regulators for the inability to detect the fraud on time and said laws would be further tightened, if required, to punish fraudsters.