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PNB scam fallout: FM Arun Jaitley takes a dig at the banking community

Soumalya Santikari
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Moneycontrol News

Expressing angst about the lack of ethics in Indian businesses, Finance Minister Arun Jaitley on Tuesday questioned the functioning of public sector banks and the role of their management and auditors.

Hinting at the fraud engulfing country's second largest public sector lender Punjab National Bank (PNB) and the alleged involvement of celebrity diamond merchant Nirav Modi, Jaitley said that the government will ‘chase these people to the last possible conclusion to make sure the country is not cheated’.

“Today if you look at the emerging situation, even if these are stray cases they throw up several important questions. The first important question is with regard to lack of ethics that a section of Indian business follows. Therefore, it is incumbent on us as a state, till the last legitimate capacity, to chase these people to the last possible conclusion to make sure the country is not cheated,” Jaitley said at the annual meeting of the Association of Development Financial Institutions In Asia and the Pacific.

This is the first time that the finance minister broke his silence on the whopping Rs 11,400 crore fraud involving PNB and a top diamond merchant that shocked the nation.

On February 14, PNB informed domestic bourses that it had detected fraudulent transactions worth around Rs 11,400 crore. Prior to this announcement, the bank had already lodged a complaint with CBI and ED against celebrity jeweller Nirav Modi and his relative Mehul Choksi for alleged embezzlement of Rs 280.70 crore.

Two PNB officials at one of its Mumbai branches had fraudulently issued letter of understanding (LoU) to overseas branches of Axis Bank, State Bank of India, Union Bank of India and Allahabad Bank to raise RS 11,400 crore for the business man’s raw gem import orders.

The PNB fraud case has opened a can of worms and has raised questions on the internal checks and working of the public sector banks. With the banking sector grappling with NPAs and people like Vijay Mallya and Nirav Modi taking them for a ride, the government, especially the finance ministry, has come under a lot of criticism for failing to address the problems.

Without naming any bank, Jaitley said that a bank’s management is ‘expected to utilise its authority effectively and in a right manner’.

“Therefore, the question for the management itself is were they found lacking…You are found lacking when you are unable to check who amongst them were delinquent,” he said, calling these 'stray cases’ emerging challenges.

“Any such system of banking really functions on trust. And that trust is inherent in the lender-creditor relationship. I think that relationship in India blurred itself out when a section, not so ethical a section perhaps thought that it was not its responsibility to pay back. And therefore we had to come back with hard solutions,” Jaitley said.

The FM also questioned the role of external and internal auditors as they failed to detect the alleged fraud.

"There is an important challenge where the supervisory agencies are now to introspect as what are the additional mechanisms they have to put in place to ensure that stray cases don’t become a pattern again," he said.