Nirav Modi is a new poster boy to destroy banking sector in Indiaby Opinion Express February 16, 2018 0 comments
Scale of fraud in PNB shows there is something deeply rotten in India’s public sector banks.
As you drive past Nirav Modi’s flagship store in South Delhi’s posh Defence Colony you see billboards of Bollywood and Hollywood stars adorned with Modi’s diamonds. In the last few years, Nirav Modi had become one of India’s richest men and his chain of jewelry stores across India and the world became highly regarded. But what is emerging in the past few days, especially from Punjab National Bank (PNB), is that Nirav Modi’s empire appears to have been built on fraud. First, news of a Rs. 280 crore fraud emerged and it was followed by the disclosure of a whopping Rs. 11 ,800 crore fraud where the state-owned lender found itself exposed to bad loans made to Nirav and his associates on the basis of forged documents and through corrupt officials. What is remarkable is not that the details of the scam emerged now, but also that the scam apparently had been going on since 2011 and that officials were notified a few years ago. At the same time, Nirav and his associates managed to flee the country before news of the mega-fraud broke.
That said, the Managing Director of PNB has not clarified the extent of the loot but this highlights how taxpayers are left holding the can for banking failures in the public sector, and while the Congress will gloat over this scam it would be inopportune for them to do so because the scam began under their watch. Many questions are still being asked about this fraud and the well-connected individuals at the heart of the alleged loot. But the obvious question should be how it took six and a half years to come to light if indeed money had been lent to these individuals. Did it only come to light as the Reserve Bank of India made reporting Non-Performing Assets a far stricter process for Indian banks? And how will the scam impact not only PNB but also other state-owned lenders? All this comes in the wake of the State Bank of India, the country’s largest bank, having declared some spectacular losses in the recently concluded quarter. With their books bleeding and the RBI’s latest strictures making it difficult to keep on ‘evergreen’ loans, access to banking credit for firms large and small will become even more difficult. But it isn’t just this story that should trouble the Government and the RBI. There is also the curious case of the Bank of Baroda which apparently broke all laws by banking with the scandal-linked Gupta family in South Africa which is accused of ‘state capture’ in that country. It appears the bank broke all its own rules in banking transactions with the Gupta family and bank managers even implored the family for favours.
The Indian public banking sector is in a deep state of rot and four years into his administration, Narendra Modi should be worried. Despite lower inter- est rates, credit off-take has been weak in India with banks almost scared to lend money; the scale of the NPA problem under the previous UPA government was like a poison pill planted to undermine Modi’s promise of job growth. However, some positive news is emerging with the push towards improving things for small and medium enterprises with better banking services. But is there more bad news on the horizon? The banking sector in India needs structural reforms, Modi government must address the problem with immediate effect.
Inputs from The Pioneer www.dailypioneer.com