The board of state-run Allahabad Bank on Tuesday took away all the powers of its managing director and chief executive Usha Ananthasubramanian following a directive from the finance ministry in connection with the $2-billion fraud at Punjab National Bank, which she headed for about 21 months through May 2017.
Shares of Allahabad Bank tanked 8.6% on the BSE on Tuesday (even though the Sensex remained flat), extending a 3.2% drop on Monday when the government cracked the whip.
With this move, three top bankers at two banks — including PNB executive directors KV Brahmaji Rao and Sanjiv Sharan — have been shown the door since Monday after the Central Bureau of Investigation (CBI) filed the first chargesheet on the biggest fraud in the country’s banking history, involving jeweller Nirav Modi. The government acted swiftly after the CBI action, asking the boards of the two public-sector banks to divest their top officials of powers.
The bankers were charged under section 409 of the Indian Penal Code (IPC) for criminal breach of trust and section 420 of the IPC for cheating and Section 13(2) of the Prevention of Corruption Act for causing wrongful losses to the bank and criminal breach of trust to the public. The chargesheet was filed against 25 entities, including 22 individuals and three firms.
After a board meeting here called by the government’s nominee, Allahabad Bank said in a filing with stock exchanges: “…the Board of directors of the bank in its meeting held on date has decided that Usha Ananthasubramanian, MD & CEO, be divested of all functional responsibilities of the bank with immediate effect and the government of India, ministry of finance, department of financial services be requested to make suitable arrangements for smooth functioning of the bank.”
Ananthasubramanian’s departure stokes fresh uncertainties at Allahabad Bank — which is already placed under the PCA framework and asked by the central bank to curb lending until it fixes its finances — at least until a replacement is announced. It also means the Indian Banks Association will have to find a new chief, as Ananthasubramanian, earlier this year, became the first woman to head the association in its 71-year long history. She had also served as the executive director of PNB from July 2011 to November 2013. Since the CBI is in the process of filing supplementary chargesheets in the fraud case, more heads are expected to roll.
The CBI’s chargesheet on Monday primarily dealt with the first FIR registered in the case relating to the over `6,000-crore letters of undertaking fraudulently issued to Nirav Modi’s Diamond R US, Solar Exports and Stellar Diamonds. The CBI had registered three separate FIRs in connection with the PNB fraud, involving firms of both Nirav Modi and his uncle Mehul Choksi. It also contained details of the role of Ananthasubramanian and others in the fraud.