Massive Fraud In Government Owned Punjab National Bank: Test Case For Modi – OpEd


The massive fraud in the government of India owned Punjab National Bank has shocked the citizens all over India and has also caused considerable surprise around the world for it’s brazenness. What is particularly disturbing is the way that the fraud took place, by passing the established procedures and proving that the extensive accounting package software can be manipulated.

What happened?

What has happened is very clear now. The bank staff holding crucial position in the foreign exchange department of Punjab National Bank in India has sent Letter of Understanding (LOU, which is bank guarantee) to the overseas banks favoring a particular client, by sending SWIFT message without bringing the transaction details in the mainstream account of the Punjab National Bank in India.

The situation is that because the bank guarantee was given without ensuring proper back up commitment from the client, liability of the bank has increased. At the same time, there is no liability increase for the client. By ensuring that the details of the LOU sent to the overseas bank by SWIFT messaging system remained delinked with the accounting software package, the bank has been kept in the dark about the bank guarantee extended.

Many wonder as to how could this happen?

Is the accounting package software design was so bad that it was not linked to the SWIFT messaging system? Or is the accounting package software was manipulated selectively to ensure that it would remain delinked with the SWIFT messaging system deliberately when particular transaction was carried out? In case of such manipulation of the accounting packaging software, this cannot be done at the branch office level but can be done only at the central office, where the systems are maintained and monitored.

Further, the banks have several auditing procedures including concurrent auditing, internal auditing, periodical inspection, statutory auditing, foreign exchange management auditing etc. How is it that none of the auditing procedures have spotted the fraud , when not one but several hundred fraudulent LOUs have been sent?

One more question is that while the banks maintain nastro account (account held by a bank in another bank in foreign currency), has not Punjab National Bank in India reconciled its nastro account with the banks abroad at frequent intervals? Why auditors have failed to see this lapse?

Further, why is it that the overseas banks have not insisted on invoking their bank guarantee when the client has failed to return the loan beyond the guarantee period?

Given all such facts and suspicions, one cannot but conclude that massive collusion have taken place between the officers and staff at the various levels operating in the bank, the corrupt business man and the auditors involved at various stages of auditing

This suspicion is becoming even stronger , when it is known that the fraud has taken place over several months and the staff in the crucial position in the foreign exchange department doing the mischief remained in the same position for extended period.

Politics now

As expected from the politicians, the opposition parties are blaming Modi government for this massive fraud and members of the Modi government accuse the main opposition party of being responsible for the fraud which was reported to have started when they were in power.

Modi has now a test case

The real strength of Mr. Narendra Modi is the strong belief among the large section of country men that Mr. Modi’s commitment to the cause of probity in public life and corruption free India is total. He was voted to power with massive majority during last election, largely due to his promise that he would root out corruption in toto and bring transparency in public life and people believed that he would be capable of fulfilling his assurance.

Both the pledged admirers and critics of Mr. Modi now seem to think that the massive fraud in Punjab National Bank, which is a government owned bank, is a slap on Mr. Modi’s face.

Certainly, people do not think that Mr. Modi is responsible for such massive fraud but do think that the systems and procedures in practice have not been adequate and Modi government should be held responsible for this.

It is absolutely necessary now that Mr. Modi has to act decisively and urgently to put an end to this kind of massive bank frauds, so that the country men would continue to repose faith in his capability to root out corruption in India.

What Mr. Modi needs to do now?

It is essential to admit that there have been massive collusion between the bank staff at various levels and the corrupt business man and auditors. The Chairman, Managing Director and other directors in the bank and auditors should accept responsibility for this deplorable condition and should be made to quit forthwith.

To speed up the investigation procedure , a special investigative team drawn from CBI, Enforcement directorate and professionals should be constituted and should be asked to complete the investigation process within three months.

An adhoc committee of retired senior bank officials should be appointed to run the affairs of the bank , until a new board would be constituted based on proper procedures.

All the existing directors in the bank and senior executives directly related to the matter should be asked to subject themselves to detailed investigation by the investigating agencies.

If anyone at the various levels in the bank come under suspicious net, they should be arrested forthwith for detailed investigation.

No other option for Mr. Modi

Damage to the reputation of Mr. Modi and his government would be very severe, in case that Modi government would not act with regard to this massive bank fraud with great speed and highest priority.

It takes enormous efforts to win the goodwill and confidence of the people and it should not be allowed to be wiped out in one stroke, which would happen if the culprits were not to be caught immediately and punished severely by the Modi government.

N. S. Venkataraman

N. S. Venkataraman is a trustee with the "Nandini Voice for the Deprived," a not-for-profit organization that aims to highlight the problems of downtrodden and deprived people and support their cause. To promote probity and ethical values in private and public life and to deliberate on socio-economic issues in a dispassionate and objective manner.

Leave a Reply

Your email address will not be published. Required fields are marked *