NPAs and bank frauds

The  recent  bank fraud in PNB, 2nd largest public sector bank, has not only jolted the concerned bank itself but the whole banking system in India. The irony of fact is that the bank fraud had taken place in 2011 and was detected in January 2018. It took the bank seven years to detect it. The scam was allowed to continue for such a long period with the connivance of some of the bank officials of the Bombay’s  Brandy branch of PNB. The amount involved in this scam has been to the tune of Rs.13600 cores as per the various news report and has become the largest bank scam in the banking history of India. The two infamous businessmen Nirav Modi and his uncle Mehul Choksi, who with the connivance of some bank officials committed this fraud have been declared the fugitive offenders for fleeing the country. All the bank employees reportedly arrested so far have been the part of FOREX department at bandy branch. Choksi has also defrauded J&K bank worth about Rs.152 crores. For a small bank like JKB, the defrauded money is a very huge  amount.

 The JKBank’s Fort branch had sanctioned Rs 121 crore to Mehul Choksi for his diamond show room ‘Gitanjli Gems’ in Mumbai in the year 2012. However Choksi turned willful defaulter after obtaining loan. The loan amount has risen to around Rs 152 crore including interest and panel interest. The question arises why the bank officials slept over for last six years, over this bank fraud and why no legal action was taken by the concerned bank officials or officers sitting in the corporate office against the fraudster and bank officials of the branch responsible for such lapses. In my last article I had alerted the JK bank to examine the status of all the NPAs and suggested them to make every efforts for their recovery, so that the health of bank is improved. The PNB’S big fraud has proved that how the poor depositors money is being swindled by the so called big businessmen with connivance of bank officials/ auditors and due to lack of poor supervision and poor monitoring on the part of their officers and CEO’S. It is learnt that most of NPA’s declared by the JKB, are the borrowers  from out side the state and the bank has so  for failed to take any legal action against these businessmen. The terminology of NPA does not denote bad loan only but a white wash just to cover the misdeeds of some fraudster businessmen and the black sheep bank officials and to overshadow the bank losses. The concerned investigating agency should also assess the property accumulated by those bank officials who have sanctioned these loans and responsible for allowing the depositors money to swindle by these fraudster business men.          

   

After the PNB bank scam, many other bank frauds of Rs 3695 crore and Rs. 824 core, involving Rotomac promoters and Chennai Jeweler, Kanishk Gold Pvt Ltd respectively have come to light and the companies have been accused of defrauding the consortium of  banks. These fraudster businessmen are so clever and cunning that they pre-empt their bid to flee the country before the concerned authority tries to lay hand on them. But one thing is clear that some black sheep officials of the concerned bank seem to be regularly in touch with these fraudster businessmen or their henchmen and accordingly inform them about the activities of the bank and provide safe passage to these fraudsters, enabling them to flee the country to escape from clutches of  law. The bank typically has money from two sources namely the RBI and depositors who keep money in the bank. The corporate side also provide money from shareholders as well. In case the bank has reported fraudulent ‘transactions’ the money from corporate side is ruled out.

Money that the RBI lends to a bank is essential to ensure cash ratio reserve. The union government has recently taken some measures and approved “Fugitive Economic offenders bill”— which provides for confiscating all assets of absconder fraudster and loan defaulters who have an out standing of 100 crore —against whom the court has issued an arrest warrant for scheduled offence and who leaves or has left India so as to avoid criminal prosecution. The cabinet also approved setting up of a National Financial Reporting Authority to regulate erring auditors. The finance minister has said that authority given to the management of banks have failed to detect the lapses and have not utilized that authority in a right manner. ‘The lenders were unable to check who amongst them were delinquent, and asked the Chartered  accountants to start introspection as to what legitimate action needs to be taken as both internal and external audit have failed to detect’ He further said that there is an important challenge for the management to introspect as to how to improve their supervisory role. The Finance ministry has directed PSB’s  to probe all NPA’s accounts of over Rs 50 crore for possible fraud and report accordingly to CBI. The misuse of LOUs  issued by banks have been viewed seriously by the Finance ministry. These frauds have a cost to the country as well as to the tax payer. The RBI in a statement last month had termed the fraud as an “operational risk arising on account of delinquent behavior by one or more employees of the bank” The concurrent auditors of the bank who work under the internal chief auditor of the branch are considered to be a part of early warning system.  

The JK bank is also riddled with the increasing number of NPA’s. In case the value of its NPA’s is included with the bank losses and reflected in the balance sheet, its rosy picture of profit will vanish within no time. Similarly the  bank needs to go for prompt fraud identification and take action within the prescribed deadlines. The ex-union minister Saifuddin Soz has rightly asked the JK bank to answer queries raised as per the RTI act. He further said that the bank has taken wrong position both with the public as also with the J&K High court that the RTI act does not apply to it.  To make JK bank accountable and transparent, it must come under the purview of RTI act and reply the queries to J&K Information Commission to ensure the safety of depositors hard earned money. The JK Bank needs to improve the regulatory system and upgrade the auditing of bank. They should adopt the system of tendering the audit parties. The bank is already overstaffed due to wrong recruitment policy. They also need to stop unproductive social development  expenditure and in case  the  report is correct the bank has spent a huge amount of depositors money on the KGC Srinagar to please few members of the elite class of the society. To over come the crisis of confidence, the JK bank has to make all out efforts to  recover the bad loans from the willful defaulters and identify the fraudster loanees and their accomplices, so that legal action is taken against them and file complaints with the state Crime branch for cheating and criminal conspiracy under relevant sections of law.   

Abdul Rashid Khan (IPS)  is former IGP 

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