RBI Governor speaks on PNB Fraud

BE/RBI NOTE/9/2018

Preventing a Fraud is not possible, is what the RBI Governor says, referring to the Rs. 11,400 crore scam at the Punjab National Bank.  There is an overall talk going on that RBI supervision team should have caught the fraud that has happened, which the Governor adds is possible to conclude after any fraud has happened. He opined that necessary mechanisms were in place to avoid any irregularity, which ofcourse takes measures in bringing the frauds under control.

Keeping in view the cyber risks, the RBI Governor added that the fraud was found out and RBI had issued due instructions via three circulars in 2016 advising banks to avoid the menace.  However, the bank had not done so and we are seeing the fraud to the huge extent.  The RBI Governor added that

• The internal processes at the bank failed and allowed operational hazards to occurs inspite of clear instructions to close it.
• The banking regulation act provides limited power to RBI over PSBs.
• Such acts of looting the country’s resources, in connivance with some lenders, is indeed painful
• RBI is taking efforts in cleaning up the credit culture of the country particularly in resolving and recognizing the NPAs at the banks. He was referring that like the Nectar which came through churning of Mandara Mountain, was not easily got, since it primarily emanated huge poison, which had to be consumed by Lord Shiva.  Similarly someone must consume the poison that emanates along the way.
• Going forward with the current journey may not be smooth, and we should face a situation to consume poison at any moment like Neelakantha. Every effort will be made to correct the system, and every one should collectively work in cleaning our society.
• Government has also come out with different ways and means to correct system, which include IBC, Bank Recapitalisation package.
• Government might consider making banking regulatory powers neutral to bank ownership and a level playing field between public sector and private sector banks and also sensitise itself on public sector banking system reformation to optimize the scarce fiscal resources available.