The systemic embezzlement of Rs 11,400 crore from the accounts of Punjab National Bank is the sort of scam, criminal masterminds weave with utmost precision. The operation was conducted for a good seven years, before it was blown off.
The PNB management after PNB management in its first FIR pegged the loss at Rs 280 crore.
That the embezzlement would reach to one third of its own market capitalisation was beyond early imagination.
Three factors played an important role in blowing the lid off India's largest corporate scams involving bank guarantees.
Also Read: PNB capable of taking entire hit of Rs. 11,300 crore: Fin Min sources
The Intern:
According to highly placed sources and media reports, one of Nirav Modi's employee working with his Hong Kong branch, complained that a PNB branch manager from Hong Kong sought a bribe to clear letter of understanding(LoU).
The intern questioned why a security was necessary for a LoU, since PNB officials in the past gave LoU without due diligence and collateral securities. Was it this employee’s pursuit to make his master happy or utter naivety and ignorance of the master's working style that drove him to such a desperation? At the moment it can only be guessed.
A Greedy Officer:
PNB's DGM Gokulnath Shetty was named by PNB top brass in a CBI FIR, as the one initiating the LoU. Shetty, hailing from Malad near Mumbai, bypassed reporting transactions in the central core banking system, thereby keeping it off auditors. Updating that information could have immediately given clue.
Media reports suggest that an employee working with PNB’s Hong Kong branch, who was fired, may have been aware of Shetty's scam, and wanted to benefit too.
Also Read: PNB fraud: Ex-Deputy Bank Manager Gokulnath Shetty arrested
RBI's new reporting format
Also, the RBI anno announcement on XBRL could have been one factor that lead to spilling the beans on the Rs 11,400 crores scam.
The Reserve Bank in a notification on January 4 2018, sought all banks to move to XBRL reporting formats. XBRL (eXtensible Business Reporting Language) is a format for reporting filing details and covers heads such as unsecured, non-funded commitments, guarantees, and advances including non-fund-based ones.
he this same time, PNB which was working on Infosys’s Finacle core banking software was expected to upgrade to a different version.
The upgrade in the Brady House branch in Mumbai was to commence from the third week of January. It is believed that the upgrade, which gives better transparency may have triggered spilling the can of worms.
The RBI circular meant that the bank was forced to report non-fund-based guarantees such as line of credits and LoUs. At the moment it is unclear whether the bank's internal team discovered the scams or were aware of the developments. It is quite possible that employees like Gokulnath Shetty were named to protect the interests of the top management. Shetty was anyways ret
The bank has so far culled twenty heads, but nobody has questioned the senior management including the CEO of how such a large exercise could have been operationalised. How could the bank's top management remain oblivious, especially in a period when things such as core banking system, business analytics etc are available.
Both internal and external auditors could tally the bank's books with full confidence and present it to regulators such as SEBI. That people like Gokulnath Shetty worked within the same department, the same seat without being replaced or transferred, sounds dubious, protecting the interests of the top management.
Sadly, the top management has not been quizzed so far by either the Finance Ministry, the RoC, or even regulators like RBI or SEBI.
The bank has so far lost over one third of its market-share. It had lost nearly Rs 1800 crore in the Winsome diamonds case. The bank doesn’t seem to have learnt much from Winsome.
Also Read:
'PNB's $1.8 billion fraud is failure of various audits, RBI inspection'
No instruction to PNB to meet commitments under LoU: RBI
PMO alerted about Rs 9800-crore in dodgy loans to Mehul Choksi in 2016, claims businessman
