On February 12, the Reserve Bank of Bharat came up with a policy framework for Resolution of Stressed Assets, especially for the public sector Banks. Amidst the execution of recapitalisation and introduction of the new Insolvency and Bankruptcy Code to ease out the stressed banking system, here comes the shocker of Punjab National Bank (PNB) fraud. Rahul Gandhi and his social media team did not miss the opportunity to target the present Government as pro-rich and therefore letting off the big fishes. Going deep into the scam gives us a different picture about the mess in the Banking System.
Billionaire diamond jeweller Nirav Modi along with his wife Ami, brother Nishal and maternal uncle Mehul Chinubhai Choksi are at the centre of this scam. They are partners in various diamond and jewellery ventures having business chains at popular global business destinations such as Hong Kong, Dubai, and New York etc.
The case was unearthed in January when the PNB first filed an FIR with the Central Bureau of Investigation (CBI) stating that fraudulent Letter of Undertaking (LoUs) worth Rs 280.7 crore were first issued on January 16 this year. This facility is generally used for availing credit at Hong Kong-based branches of some other Indian banks. The issuer bank messages overseas branches of other banks through the SWIFT network, and that bank immediately pays the client against the LoU. The bank that holds the LoU then goes back to the issuer bank (PNB in this case) and gets its due for which the client is expected to maintain the cash balance in his home branch. None of the due procedures was followed in this case involving foreign currency transactions worth million of dollars.
Interestingly these LoUs were issued to Nirav Modi and Company from 2010 itself involving some PNB officials. They fraudulently issued LoUs to these firms without following a prescribed procedure, avoiding detection of transactions. There are around 30 banks who had offered credit based on LoUs issued by PNB amounting to more than Rs 11,000 crores
After cases related to Vijay Malya and Jatin Mehta cases, this is the third high profile case of defrauding banks using the credit line through some nexus. At 9.9 per cent ratio, India has been ranked fifth on the list of countries with highest Non-Performing Assets (NPAs), as per the recent report by CARE Ratings. The country is reeling under a huge NPA burden of over ?7.33 lakh crore as of June 2017, as per the report. Earlier, the apex court was informed that only 57 borrowers have defaulted on bank loans amounting to a whopping ?85,000 crore. All these loans are dating back to the UPA Government.
It is beyond doubt that this mess is created by the mindless lending policy that started in 2007-08 which reached its zenith in 2012-14. The standing committee on finance while submitting its report to Lok Sabha and the Supreme Court while hearing various petitions have clearly warned against the NPA mess created by favouring rich defaulters before 2014.
During both these times, P Chidambaram was the Finance Minister who himself is facing allegations in Aircel-Maxis case. Aircel–Maxis owes banks like SBI ?12,627 crore and has foreign currency debts worth ?595 crore, and bank guarantees and letters of credit worth ?3,232 crore. The recent raids by Enforcement Directorate on Chindamabaram’s properties reportedly found information about 21 “secret” foreign bank accounts belonging to his son Karti and his companies spread over 14 countries. Instead of giving clarification over the mess created, Chindamabaram and his leader Rahul Gandhi are busy in politicking over the scam. The Modi-led NDA Government has been trying its best to control the mess but without addressing the ‘root cause’ of this fraudulent behaviour, political patronage given by politicians to defaulters, banks cannot remain bankable.
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