By Arbind Kumar
The biggest banking industry scam surfaced in second largest nationalized bank PNB (Pubjab National Bank). Key figure Nirav Modi and accomplice fraudulently managed to use credit of this bank and shipped out largest amount ever in the history of banking sector in India. This has shaken the confidence of investors and confusion and fear prevail in the market. Literally, Nirav Modi has become another synonym of corruption. He ran out of country and look out notice is issued against him. The total fraud amounted to rupee 177.17 crore dollar or 11,356 crore rupees. Previously Bank of Baroda’s 6000 crore scam was unearthed in Delhi branch in 2015.
Warning-Former Reserve Bank of India Governor Raghuram Rajan had warned and asked to correct the balance sheet of banks. He pointed out anomalies in almost all bank’s balance sheet. In his tenure, government as well as industry barons persuaded him to lower the key rates. New Governor Urjit Patel was trying to do something in this regard, but in the meantime, government took decision of demonetization. New scam surfaced when country has not recovered from the shock of demonetization.
Misuse of credit; It became clear how few officials of bank can bypass system and can do such big fraud. Expert says, ‘if bank officials follow system, no fraud is possible.’ PNB fraud is the misuse of credit by those who are trusted to run the financial system. It is shocking; fraud was keeping its pace since 2011, but no officials of PNB, audit and even RBI did notice. Operation of banking system is in suspicion and persons involved among others are, DGM rank officer. System is made so as two bank’s official assent is mandatory for any transaction. In spite of full proof audit system and RBI’s mandatory supervisory role, corporate and bank officials maliciously used credit of reputed bank.
Concern- Stressed loans (including NPAs), restructured loans, and written-off assets presented a grim picture in the country. In fact, share of bad loans (borrowers neither paying principal nor interest) rose over the years. According to previous year figure, SBI’s stressed loans was Rs. 8lakh crore. PNB is second in this list with Rs. 57, 630 crore. Government is trying to bail out banks through bonds. Meanwhile, RBI said, ‘it is possible that other bank officers may be involved in the fraud.’ If this is correct, just wait to see the worst. Nirav Modi is latest in the series of Vijaya Malya, a Kingfisher owner who flew away. Government is fighting legal battle in Britain to get him back.
Apprehensions- Unplanned housing loan scheme had shaken USA economy and more than hundred banks were announced bankrupt one by one in 2008-09. At that time we also felt the heat of depression in US economy. Experts say, Indian banking system is more robust and its system of lending is based on realistic terms. Though Nirav’s fraud made it clear, Indian banking system lacks clarity and needs remedy. Corporate/big industries and banking officials nexus is working in full swing. It is crucial to investigate how an officer can bypass system. The whole banking system will come under suspicion and lose public confidence that will be hammering effect on economy.
Fraud amount-The fraud amount is eight times that of the profit earned by the PNB in fiscal year 2016-17. Total market cap of PNB is Rs. 35, 365 crore and fraud amount is one third of that and is 2.5 percent of 4.5 lakh crore of loan amount. On Wednesday, 14 Feb, 2018, the market share dropped by 9.8 per cent and so shareholder lost 3000 crore.
LOU- According to PNB, Diamond R US, Solar exports and Solar Diamond contracted bank on 16 January, 2018. Bank officials asked 100%cash margin before issuing Letter of Undertaking (LOU). Companies replied, ‘They were already availing this facility.’ Companies wanted to gain short term credit to pay foreign suppliers. Bank officer Gokul Shetti alongwith Manoj Kharat fraudulently issued letter of undertaking (LOU). He used swift password that is why LOU did not come in core banking system. In internal investigation of the bank, it was revealed both officials had also issued LOU before. Whole operation revealed how system can be misused.
Effect; 10 crore depositor has deposited Rs 6.36 lakh crore is PNB. Depositor will not feel the heat of fraud, money is secured there. This is nationalized bank so government gives money guarantee.
Investors; They will feel the heat of fraud. Fear gripped that bank might go in loss and so share plunged by 20% in two days. Thus market cap surged to 8, 000 crore. PNB’s 43% share is in the hand of investors. It is revealed that at least 30 bank has given loan on PNB guarantee. Reserve Bank of India has made it clear that PNB will have to bear the total loss.
Who is Nirav- Nirav Modi is the resident of Palanpur of Gujarat. His father Piyus had shifted along with his family to Belgium and settled there. Nirav’s wife Ami is US citizen. Bother Vishal has citizenship of Belgium. Nirav’s maternal uncle is Mehul Choksi, both are business partner. Nirav along with his wife, brother and maternal uncle flew from India on 6 January. CBI has issued lookout notice against all of them.
Desiner diamond; Nirav Modi is well known name among international celebrities. Kate winslet, Vayola Devis, Tarajee Hensen etc. were seen wearing his designer diamond and other jewelers in Oscar celebration that attracted media attention.
Fraud recall-Kingfisher chairman Vijaya Malya did not pay Rs 9000crore to banks. He flew to Britain. He is declared absconder.
Lalit Modi- Former IPL Commissioner Lalit Midi is facing money laundering charge and flew to England.
Deepak Talwar-corporate lobbyist Deepak Talwar is facing charge of bribery of Rs1000 crore. He too left the country and currently living in UAE.
Sanjay Bhandari- Sanjay is facing charge of tax evasion and currently living in Nepal.
Harshad Mehata-He fraudulently managed money from banks and used them in stock market. Initially market skyrocketed but later crashed. The total fraud was 4900 crore.