Reticent Urjit Patel turn eloquent

RBI Governor Urjit Patel's silence on demonetization made him an easy target for critics. Almost all public statements on demonetization were made by economic affairs secretary Shaktikanta Das giving rise to the impression that government had sidelined RBI and usurped its policy role, confining it to mere execution. But the Nirav Modi-PNB scam has forced Patel to shun reticence and speak out on several contentious issues without mincing words. 

• Patel rejected accusations that the regulator’s laxity was to blame for the Rs.13,000-crore fraud at state-owned Punjab National Bank, suggesting that laws need to be changed to ensure punitive action can be taken in time and effectively putting the onus on the government. 
• He made a pitch for withdrawal of legal immunity from RBI regulations that PSB's enjoy, saying it had led to considerable emaciation of RBI powers over corporate governance. 
• Patel made an indirect case for privatisation or reducing the role of state-owned lenders. He said the government should decide what to do with public sector banks if it wanted to optimise the use of taxpayer money.
• He asserted that Banking Regulatory Powers in India are NOT Ownership Neutral. He then went on to read out chapter and verse, the list of clauses and sub-clauses from the legal landscape to underline the helplessness of RBI when it came to regulating public sector banks, which account for nearly 70% of Indian banking.
• Making this worse is the persistence of delays, of criminal investigation and judicial process. The Governor points out that “RBI data on banking frauds suggests that only a handful of cases over the past five years have had closure, and cases of substantive economic significance remain open. As a result, the overall enforcement mechanism is not perceived to be a major deterrent to frauds relative to economic gains from fraud.”
• Nearly nine months later – after two rounds of selection meetings – the Deputy Governor’s post is yet vacant.
• RBI is faced with constraints. It cannot act to remove directors or the management of public sector banks. But does it need the ultimate power to prevent malfeasance? The RBI is empowered to give directions where it is in the public interest. How often has that been deployed? Has the power of inspection been utilised? A call for more power is not a credible demand when existing provisions have not been leveraged.
• RBI said: “The risks arising from the potential malicious use of the SWIFT infrastructure” has been a risk factor and it had “confidentially cautioned and alerted banks” on three occasions since August 2016 and added, “Banks have, however, been at varying levels in implementation of such measures.” But RBI never cautioned savers about these risks in the banking systems.
• He said, “If we need to face the brickbats and be the Neelakantha consuming this poison, we will do so as our duty. We will persist with our endeavours and get better with each trial and tribulation along the way." He went on to saying that promoters and banks should seek to be on the side of the devas (the gods) rather than asuras (the demons) in this amrit manthan. 

Despite his image of a reticent, submissive man, Patel withstood pressures from various sides after demonetisation, stuck to a low-inflation regime, didn't lap up the proposal to create a bad bank and opposed farm debt waivers, calling them moral hazards posing inflation risk and undermining an honest credit culture. With his robust defence of the central bank and castigation of public sector banks, Patel has buried the image of a central banker of few words. And with his mythological references, he has shown he can find eloquence when required. 

The full text of RBI Governor's speech

Responsibility shared by two persons is not 50% each. It is 10% each.

While Bank's proper management rests with the owners (MoF in case PSB's), Urjit Patel, RBI Governor can't resort to offensive in the blame game initiated by Arun Jaitley by invoking mythological comparisons and absolve of its regulatory failures.

Had Urjit Patel shown same courage in 2016, the harebrained demonetization wouldn't have happened and nation would have been spared of its consequences borne mostly by lower class people. These discussions, reasons and advises will be engaging our time and leads to nowhere. While the loot may never get recovered, what is important is elimination of recurrence of such events in future. Urjit Patel must know his responsibility as institutional head never to allow government interference beyond a point and preserve institution's independence and integrity at all costs. Government as owner of PSB's is solely responsible for their proper functioning and the regulatory rules governing PSB's and private banks must be same. RBI's regulatory role in preserving depositors & lenders interests and integrity of banking system can not be compromised.

PNB fraud: Unanswered questions

The duration (6+ years) and magnitude (Rs.11,400 crores) of the fraud raises too many questions to rule out wider collusion. Some bankers believe that the exposure of Indian banks in this fraud involving jeweller Nirav Modi, his relatives and associated companies may touch Rs 20,000 crore. 

• The accused are retired PNB Deputy Manager Gokulnath Shetty, PNB's Single Window Operator Manoj Kharat and authorized signatory of the Nirav Modi's group companies, Hemant Bhatt. These two junior employees in a bank branch allegedly helped Nirav Modi all along for more than six years. 
• The PNB became suspicious only on Jan 16, 2018 when the accused companies approached it with import documents and a request to issue LoUs for raising buyers' credit for making payments to the overseas suppliers, after the retirement of Shetty. An alarmed bank dug out all such LoUs and LCs showing a mammoth liability towards other banks. 
• Months ahead of retirement of Gokulnath Shetty, at least 143 LoUs were issued in 63 days, starting March 1, 2017, compared to around 150 issued since 2011, when the alleged fraud began. The frenetic pace may appear like frenzy if one were to exclude weekends and bank holidays during the period. In terms of the amount involved, however, the first 150 LoUs that relate to PNB’s case against Nirav Modi involved around Rs 6,500 crore, while the 143 accounted for a tad over Rs 3,000 crore. 
• These two employees avoided employee transfer norms of three years. They circumvented rules crafted to prevent borrower-lender cosy collusion. 
• It also indicates collapse of risk mitigation across the banking system.
• Gokulnath Shetty, for the last seven years, was bypassing core banking system of the bank and issuing LoUs fraudulently.
• The conniving officer also issued Foreign LoU's by entering a smaller amount in trade finance module of Core Banking Solutions (CBS) system and generating the reference number and a SWIFT message was sent for the amount. Subsequently without making any changes in the module of the CBS, the conniving officer sent modified SWIFT message for enhanced amount under the same reference to the beneficiary bank. 
• Why these branch employees were authorised to issue LoUs well above what their pay grade would suggest, running into hundreds of crores? 
• These letters were then accepted by several other banks who never cross verified anything for years. 
• These LoUs, with validity of 6 months to 12 months, flagrantly violated RBI’s limit of 90 days of credit. Yet, none of the 30 overseas lending bank noticed this.  
• An LoU is a bank guarantee. It’s something that should be accounted for somewhere, even if it is a non-funded item. Strangely, the mandatory audit that matches transactions never picked up any irregularities.
• The mandatory 100% cash guarantee for issuance of LoU's was never insisted for Nirav Modi's companies by the PNB all along.
• Not a single external auditor, four at any given point in time, found anything amiss while reconciling transactions and LoU's.
• Only a few years ago, PNB lost Rs.1,800 crores in the Winsome Diamond Group's Rs.6,800 crore LoC scam but still reckless.
• It seems that at PNB, no one from vigilance, bank regulator, board of directors, senior management never focused on tightening up the criteria for issuing LoCs or LoUs, especially to the jeweller community.
• It seems PNB's branch employees received Rs.823 crores as kickbacks from Nirav Modi for the scandalous LoUs in these 6+ years.
• It is impossible to believe that the fraud was pulled off by just two employees with all the business intelligence technology, online updating of computerized accounts and dashboards our banks use.
• PNB’s repeated misadventures is a failure of not just of risk management processes, but also of the banking manager's, regulator’s role and the indifference of the custodians of public money. 
• The Nirav Modi episode, including his undetected departure from India like several other alleged fraudsters before him, sends out a damning message that cuts across political parties about laws and systems that govern the poor and the rich, are not the same.
• PNB is avoiding taking the entire responsibility for the scam. In a letter dated Feb 12, 2018,  PNB CEO Sunil Mehta explained the modus operandi to 30 banks affected by the Nirav Modi scam. The letter said that an LoU was opened in favour of overseas branches of Indian banks for import of pearls for a one-year period against the RBI guidelines that stipulate only a 90-day timeline. “This 90-day timeline stipulated has been overlooked by overseas branches of Indian banks,” the letter says. The letter further says that “there was a clear criminal connivance of group companies of Nirav Modi and Gitanjali Gems with PNB branch officials and officials of overseas branches of India banks”. This shows that there is a veiled attempt to share the blame by PNB. 
• Why PM and FM are maintaining stoic silence on this scandal and unconnected Raksha Mantri is briefing press conferences with unconnected details?
• The banking software provided by Infosys - Finacle needs to be upgraded with more robust one which would block this kind of frauds by junior officers and alerts sent to higher authorities. 
• Whistle blower systems must be encouraged. 
• It is impossible to believe that a few junior employees are behind this himalayan fraud. It is the responsibility the investigating agencies to bring out the truth and catch the big rats within and outside banking system. Higher management must be booked and jailed for this fraud. They can't escape their responsibility by fixing juniors.
• Diamonds as a security are susceptible to fraud. It's almost intangible. Bankers have no expertise in estimating the value of either rough stones or polished jewels and are not trained to differentiate between synthetic diamonds and natural ones either. As a moveable asset class, where lots of precious stones can look very similar, there is more chance of fraud and duplication. Bankers in India have learnt not to trust the diamond trade.
• For many diamond traders, the banks often turn down their credit demand even after submitting documents. For many demands for loans ranging between Rs 1 crore to Rs 20 crore are scrapped. Now PNB has given Rs 11,300 crore to Modi without checking any details. On one hand, the government is vociferous about compliance, and on the other hand banks are lending money without checking any documents. What a dichotomy? 
• If our political system can't manage our banking system properly giving rise to demand for privatization, how can they are competent to run Govt of India? Will they privatize GoI in preference to efficiency?
• The entire PNB Board and Top Management must resign owing responsibility for fraud and consequent losses. This will  facilitate investigating agencies to findout whether they are are involved in the fraud or not without coercion.
• India's government has said the fraud at PNB was a "manifestation of supervisory failure" at the country's central bank. In a letter to the RBI, the government said the failure to detect the biggest ever banking fraud, raised questions about the central bank's "Efficacy of supervision to detect and check systemic failure. Either the framework designed by RBI to prevent and detect such frauds is inadequate or RBI is unable to ensure its effective implementation." RBI is yet to respond.

PNB received the Vigilance Excellence Award, a year ago 

Laws grind the poor, and rich men rule the law.

Such a Himalayan Fraud involving massive amounts, undetected for 6+ years could not have been by few junior bank employees without active support from higher levels in political, bureaucratic and banking circles. Investigating agencies must unearth all these abettors creating such a gigantic  national loss. Every person violating the procedures must be booked and made answerable and accountable in PNB, other banks and every where. While the scam started in 2011 during UPA regime, all the loss causing LoUs dates to past one year, 3 years after NDA & Modi came into power and can't escape responsibility and accountability. While RBI's supervisory failure is a certainty, Govt of India blaming RBI squarely is untenable. Being owner of the bank, GoI, FM are answerable and accountable for not complying the procedures prescribed by RBI.

Nirav Modi defrauds PNB of Rs.11,400 crores and flees away

Nirav Modi with PM Narendra Modi at Davos on 24-Jan-2018

Nirav Modi, who defrauded PNB by over Rs.11,000 crores

• Punjab National Bank (PNB) said on 14-Feb-2018 that it had been defrauded of about Rs 11,400 crores by jeweller Nirav Modi, his maternal uncle Mehul Chinubhai Choksi, and other relatives through a clutch of companies they own.
• Two of its employees were involved in the scam, where the bank’s core banking system was bypassed to raise payment notes to overseas branches of other Indian banks, including Allahabad Bank, Axis Bank, and Union Bank of India, using the international financial communication system, SWIFT.
• As the payment request was raised by PNB, and therefore, the payment would have to be met by the Delhi-based Punjab National Bank. PNB in a letter to banks, indicated clearly that it was in no mood to pay back and alleged connivance of employees at the foreign branches of other Indian banks. The banking system is heading towards a protracted legal battle as other banks will start suing PNB over non-payment of dues and refusal to honour commitments.
• An age-old method employed to defraud the banking system. It involved LoUs raised at the PNB’s Mumbai office by firms owned by Modi and his family. A LoU works like a bank guarantee, which the importer can sell to other banks at a discount. At the end, the bank that holds the LoU goes back to the issuer bank (PNB in this case) and gets its due. The issuer bank (PNB) recovers its due against the LoU from its client (Modi).
• However, issuance of the LoU involves a lot of process and to mitigate the risks of fraud, banks insist the client deposit an equivalent amount of assets, mainly cash, in the local branch, to avail of the overseas facility. Since LoU expires within a maximum of 180 days and fresh LoU needs to be issued. Since first LoU was issued to Nirav Modi in 2011, several fresh LoC's issuance could not have happened with political patronage and connivance of bank's top brass.
• PNB disclosed that it detected fraudulent and unauthorised transactions worth around $1.78 billion (approximately Rs 11,400 crores) “for the benefit of a few select account holders” with the help of the bank staff based in one of its Mumbai branches. “In the bank these transactions are contingent in nature and liability arising out of these on the bank shall be decided based on the law and genuineness of the underlying transactions,” the bank said.
• DFS Secretary Rajiv Kumar said this seemed to be an isolated case and would not impact other banks.
• Nirav Modi & his family are believed to have left the country several days before lodging of FIR by CBI and is believed to be in Switzerland.  
• An interesting reader's comment ...
  

  "You cannot fault Rajiv Kumar, for sure. He knows which side of the bread is buttered, and so, unsolicited, he jumps to the govt's defence by invoking 2011. But deafening silence from the FM, the RBI, the Finance Secretary -- not to mention the PM for whom, understandably, Rs 11k Crore is a measly little sum totally undeserving of his attention. He is busy doing what he does best: address election meetings where, other than subtly stoking communal fires, he speaks grandly of Vikash. Surely his Vikash model has stood Nirav Modi in good stead, and as far as the ordinary Indian citizen is concerned, our PM couldn't care less, as every Bharatiya happens to know by now. So the field is left open for the usual buffoonery of Ravishankar Prasad and a pugnacious (though completely witless) intervention by the Raksha Mantri. Nobody has apparently suggested to Nirmala Sitaraman that she had better take care of the country's porous borders -- which happen to be under her charge and are leaking all the while -- rather than talking about things she doesn't have the foggiest idea about. But, then, who will advise whom about what in the madhouse that Modi's India has turned into?"

SNAP SHOT

1. On 14 Feb 2018, the CBI received complaints from PNB, which detected a Rs 11,292 crore fraud involving jeweller Nirav Modi.
2. The number of suspended employees now stands at 18.
3. Nirav Modi’s home, offices in Mumbai, Delhi and Surat were raided by the ED on 15 Feb 2018.
4. The CBI and the ED have moved separate applications with the EAM, seeking the revocation of passports of Modi and his partner Choksi.
5. PNB suspended 10 officials from its Mumbai branch in connection with the case.
6. In two days, PNB lost over Rs 8,000 crore of market valuation.
7. The case turned political after the Congress termed Nirav ‘Chotta Modi’.
8. Officials said Modi and his family fled India in the first week of January, days before the first complaint was filed.

Power corrupts and absolute power corrupts absolutely. 

All those experiments have a bad ending.

Read the source article

Gem of a scam - Business Standard

Every new government will be 'clean' during first 1-2 years. Their misdeeds will surface by end of 3rd year or later. BJP & Modi are no exception. Modi just followed the time tested corruption path established by Congress and even more reckless. Only narrative is different. The fact that more than 90% of political donations reached BJP coffers speaks volumes about quid pro quo's involved. While the Nirav Modi's scam occurred during past 1-2 years, BJP attempting to link it to Congress invoking 2011 is just nonsense. BJP may or may not be responsible for this scam, but the way they are responding leaves people of India without any doubts about their involvement. There is no way BJP or any political party will accept their wrong doings, the best - people of India can do is to defeat them in 2019 general elections. This may pave way to Congress regain power but we hardly have choice. In Indian political arena even a saint ascending to power will end up in corruption, cronyism, nepotism etc. Even in USA, no one ever retired from Presidency more respected by political friends and foes alike. Such is the power of power & money.