Black money is generated only through organised loot of public assets.
In the Nirav Modi-Punjab National Bank scam whose root have been traced back to 2011, the chickens have come home to roost, however, the tragic part of the scams like these is that by the time they are unearthed, the culprits manage to find safe havens in other countries. Before Nirav Modi did the vanishing act, Lalit Modi and Vijay Mallya succeeded in giving authorities a slip.
Modi, his wife Ami, brother Nishal, uncle and business partner Mehul Choksi, all left the country in the first week of January. Nirav Modi was last seen in Switzerland at the World Economic Forum in Davos, where Prime Minister Narendra Modi was the star speaker, between January 23 and January 26.
If this person had fled India before the FIR on Jan 31, then he is here, photographed at Davos with PM, a week before the FIR, after having escaped from India? Modi govt must clarify. #NiravModi #PublicMoneyLoot pic.twitter.com/gQQnKQNjDo— Sitaram Yechury (@SitaramYechury) February 15, 2018
It is quite clear by now that the huge bank fraud was a result of a series of massive financial bungling involving the bank staff, auditors and those tasked with looking into such scams orchestrated by the banks because they all failed to expose this Rs 114 billion ($1.8 billion) fraud that was in the making since 2011.
Meanwhile, the government kept pumping in public money into the ailing PNB, country's second largest state-owned bank. While the government infused Rs 500 crore into PNB in 2013-14, by 2017-18 the amount rose to Rs 5,473 crore.
Financial investigators have found an additional Rs 3,000 crore worth of exposure of 17 banks; rolling over of the same Letters of Understanding (LoUs) many times and alleged round-tripping of funds.
Even if Nirav Modi was to return to India, recovering this money would be impossible in this mega financial fraud.
The question that must be asked is how a scam of this magnitude could remain hidden since 2011.
Rajiv Kumar, secretary to the Department of Financial Services, said that the fraud was detected due to the pressure on banks to clean up their books and that it was a "systemic issue". But aren't all big financial frauds "systemic issues?" Can Kumar deny that even demonetisation and GST are "systemic issues"?
The system sure could have exposed the PNB rot much earlier which could have limited the damage to the exchequer.
How the scam was exposed
The scam could reportedly be exposed because an employee of Nirav Modi told the Hong Kong branch of an Indian bank that the reason why a particular LoU was delayed was that an official of PNB's Mumbai office in Brady House had asked for a bribe to issue the guarantee.
This was brought to the notice of the Reserve Bank of India by the overseas bank, which immediately asked PNB for an explanation. Preliminary investigation into the bribe demand pointed fingers at one employee of the branch but deeper investigation went on to spill the beans on the entire fraud.
However, serious questions remain to be answered. How were so many LoUs issued without "systemic" oversight. The fact that PNB could continue its violations and cover up seven years, shows there remained some serious weaknesses in the "system". In June 2017, the RBI in its Financial Stability Report, called frauds in banks and financial institutions "one of the emerging risks to the financial sector". This was never followed up.
Central bank data, which Reuters has obtained via a Right to Information (RTI) request, reveals that India's state lenders reported 8,670 cases of "loan fraud" totalling Rs 612.6 billion over the past five fiscal years, up to March 31, 2017.
In the RTI request, a Reuters journalist sought data from 20 of India's 21 state-run banks and obtained 15 replies. Scandal-hit PNB topped the list with 389 cases totalling Rs 65.62 billion over the past five financial years, in terms of the total amounts involved.
Unfortunately, Reuters was unable to obtain a detailed break-up of the exact nature and method of the loan frauds the banks reported to the RBI over the years. This tragically is yet another example of hidebound and secrecy inclined public institutions refusing to divulge financial matters, based on antiquated rules and procedures.
If highly regarded public institutions like the RBI had released information that they were privy to in time, a massive bank fraud, would have been exposed much earlier. It is high time that these loopholes are plugged and systemic changes introduced.