Why Opposition needs to ask Modi government for a white paper on PNB scam

The central government must be made accountable for Vijay Mallya's flight from India along with Nirav Modi's fraud.

 |  4-minute read |   19-02-2018
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The Punjab National Bank (PNB) fraud is an opportunity for the Opposition to come together and ask the government to present a white paper on the Rs 11,4000 crore scam. Congress president Rahul Gandhi had hinted at the possibility of such a demand being made, however, there doesn't seem to be much muscle behind it. It appears that the Opposition is divided over this demand because going after the scam may expose the rot in public sector banks and lead the government to offer privatisation of banks as a solution.


It is for this reason that the Opposition is going after Narendra Modi and not Nirav Modi.

The "scam" allegedly had been going on since 2011. The ease with which NiMo & Co (including Mehul Choksi) carried out this fraud is shockingly simple.

Let us assume that the top management of PNB had no hand in the scam till a detailed CBI investigation can prove otherwise. Nirav Modi approached a deputy manager named Gokulnath Shetty, now retired, at a PNB branch in Mumbai saying he had an import order and needed a "guarantee" from PNB for the same.

Ordinarily, PNB should have ensured NiMo's account had a cash margin to deal with a default considering the nature of risks involved in foreign exchange dealings. But Shetty issued the requested buyer's credit - letters of credit and letters of understanding (LoU) to be encashed at branches of Indian banks abroad.

The LoUs given to Nirav Modi by PNB were basically "guarantees" that the sum due under the LoU would be honoured by PNB in case of a default, within the stipulated time. Nirav Modi, of course, never honoured the LoUs.

LoUs generally involve huge sums of money and therefore are a serious mode of transaction. They are issued through a digital platform called SWIFT by PNB.

Shetty was in-charge of the LoU portfolio and was responsible for keeping track of making entries of LoUs issued, branches from where it was encashed and so on. This gentleman had been handling this sensitive portfolio for over seven years at the same branch in a clear violation of norms.


By using SWIFT, Shetty managed to hoodwink the "core banking platform". How and why? SWIFT is an old platform, it predates the core banking system. Several banks continue to use SWIFT which is unlinked to the online core banking system. If SWIFT had been linked to the core banking system, every single entry made by Shetty could have been tracked. The scam then could not have gone on for this long.

The same manager handling such a sensitive banking operation for years and the systemic failure helped Nirav Modi defraud the system.

The fraud came to light only because Shetty had retired and the new person in his place refused to issue a LoU in the absence of a 100 per cent cash margin. A representative of Nirav Modi, who it appears, wasn't in the know of the scam told the lender that all these years LoUs were being issued without such a demand for collateral being made.

A preliminary investigation spilled the beans on the scam. A fraud worth Rs 280 crore was mentioned in stock exchange filings. A deeper probe saw the scam scaling up to Rs 11,400 crore.

While the problem seems to have started at PNB due to an insider, the Reserve Bank of India too had failed in its job as a regulatory body. Even if it is accepted that the LoUs were hidden from the system, how were the regular payouts made to Nirav Modi left undetected. What kind of audits were conducted in this period that they couldn't see a scam of this magnitude? Many answers will emerge as the CBI digs deeper into the swindling of funds.

Coming back to where we started from, the Opposition is failing in its effort to make the NiMo scam stick on the Modi government. It had also failed in publicising Modi government's accountability in the flight of liquor baron Vijay Mallya. It is thus imperative that the government is asked to come out with a white paper not only with regards to the PNB scam but also, non performing assets and so-called bank capitalisation plan involving Rs 2.5 lakh crore.

Also read: Nirav Modi, the man behind India's biggest bank heist, exposes us as a society


Vijayaraghavan Narasimhan Vijayaraghavan Narasimhan @narasimhan6

Author is a practising advocate in the Madras High Court.

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