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  1. Three technical questions Punjab National Bank scam raises

Three technical questions Punjab National Bank scam raises

The Punjab National Bank fraud that took nearly seven years to get detected raises serious questions over the poor auditing standards followed by the Indian companies.

By: | Updated: February 16, 2018 11:02 AM
nirav modi pnb Punjab National Bank (PNB) reported “fraudulent and unauthorised” transactions of Rs 11,363 crore from its single branch in Mumbai.

Punjab National Bank (PNB) reported “fraudulent and unauthorised” transactions of Rs 11,363 crore from its single branch in Mumbai on Wednesday. The alleged fraud that was uncovered by the bank amounts to more than Rs 5,473 crore, the amount that was promised under Rs 2.11 trillion bank recapitalisation plan announced by the government and equals almost third of market capitalisation of the bank that stands at nearly Rs 33,000 crore. PNB shares were trading in red at Rs 125.20 down 2.45 percent at BSE at the time of reporting.

The entire incident raises three vital questions.

1)The Punjab National Bank fraud that took nearly seven years to get detected raises serious questions over the poor auditing standards followed by the Indian companies. It shows failure of various kinds of audits in the bank, including the RBI’s inspection, IANS cited a senior chartered accountant saying.

2) It has been learnt that in the case of PNB, Letters of Undertakings (LoUs) were issued without receiving any receipt of security. The firms of Nirav Modi which were issued these LoUs were only maintaining current accounts with the branches and therefore didn’t enjoy any fund or non-fund based limits, Business Standard writes.

3) IANS quoted Rakesh Nangia, Managing Partner, Nangia & Co, saying that the alleged scam is a failure of PNB’s internal checks and controls. He also raised questions over why the banking institutions enjoy the discretion to enter the data in one system and not in the main system (core banking solution).

Interestingly, the entire scam came to light only when the junior officer who handled the accounts of the firms in question retired. In wake of the challenging scenario that the Indian banking sector is facing currently in form of mounting non performing assets (NPAs), this PNB scam may further break the spine of the lending institutions. The entire matter has already been transferred to the government’s investigative agencies, and the real outcome of fraudulent transactions and the money involved will take some time to be disclosed. However, whatever the outcome, the burden once again rests on the India’s taxpayers. “The only good that could come out of the affair would be some fresh consideration to implementing better practices,” Reuters wrote in its report.

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