RBI governor cracks whip, says will break nexus between banks and businesses as PNB scam fallout grows
Speaking up on the recent frauds detected in the public sector banks, Reserve Bank of India (RBI) Governor Urjit Patel on Wednesday said that a few businesses are in cahoots with the lenders and the banking regulator is working towards breaking this unholy nexus. While speaking at the inaugural lecture at Centre for Law & Economics, Centre for Banking & Financial Laws Gujarat National Law University, Gandhinagar, RBI Governor said that it’s wrong to accuse the regulator of turning blind eye to such scams since it’s not feasible for the banking regulator to catch or prevent all kinds of financial frauds. “It’s infeasible for regulator to be in all nooks & corners of banking activities,” he said. Talking about the PNB scam, Urjit Patel said that the central bank also feels anger, hurt and pain when such banking frauds are detected.
The apex bank governor also said that there is need to refocus on the bigger issue of stressed assets resolution and banks may have to hold larger buffers in cap structure to bear losses due to frauds. Criminal investigation of frauds, penalties can serve as deterrence for preventing financial frauds in future, he said. Governor Urjit Patel also said that banking regulatory powers should be ownership neutral.
On 14 February, PNB informed exchanges that a fraud to the tune of Rs 11,700 crore was detected at its Brady House branch. PNB informed the stock exchanges that a few of its former employees colluded with billionaire diamond merchant Nirav Modi to generate fake letters of undertaking (LoUs) which were issued to a few overseas branches of the Indian banks. Finance Minister Arun Jaitley said in a written reply to Rajya Sabha on tuesday that PNB had issued 1,213 LoUs to Nirav Modi’s companies from March 2, 2011. Central Bureau of Investigation (CBI) and Enforcement Directorate (ED) are investigating the matter since then. Many raids have been conducted on the places and companies associated with Nirav Modi and his uncle Mehul Choksi since then.