Comments
Expressing concern at the more than ₹11,000-crore fraud detected at Punjab National Bank recently, the All India Bank Depositors Association said given the low level of depositors’ insurance, a fraud of this magnitude has implications for the safety of bank deposits.
“Hopefully, it would turn out to be an isolated case of fraud as claimed by the government. Nevertheless, one does not know, whether it is a systemic problem or one-off occurrence,” the Association said in a statement.
AIBDA said it is worried about the likely possibility of similar practices being followed by other commercial banks and their likely consequences.
The Association elaborated that Union Bank of India, Allahabad Bank and Axis Bank also face counter-party risk as these banks have offered credit based on letters of undertaking (LoUs) issued by PNB. This can create a systemic risk for the banking industry itself, it added.
Clarification on this matter, both from the Ministry of Finance and the Reserve Bank of India, is of urgent importance, said SS Bhandare, President.
It appears that the practice has been continuing in PNB since 2011. It is not clear whether the PNB board was aware of it. AIBDA believes that the PNB board cannot absolve itself saying it was kept in the dark for such a long time. “The system of internal control in PNB seems to have collapsed in detecting such activities. Legal process may take its own time to fix responsibility on the people involved in such illegal activities,” said the statement.
If it is a systemic failure, then the Association said there is a need to fix it at the earliest so that such frauds do not occur in future.
The AIBDA has requested the regulator to put in place a fool-proof fraud detection mechanism, which is possible in a technology-driven banking system.
“The regulator has to pull up the PNB board at the earliest to tighten the internal control system. There is also a need to improve the regulatory oversight over banks through offsite monitoring. Non-reporting of fraud should also attract heavy fines to dissuade banks to hide such cases,” the Association said.
Comments
COMMENT NOW
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.