PNB failed on all fronts to check Nirav Modi-Mehul Choksi fraud, says RBI

New Delhi, Jun 13: The Reserve Bank of India (RBI) on Tuesday put the blame of the $2-billion Nirav Modi-Mehul Choksi fraud on Punjab National Bank (PNB), including its board, and accused the state-run lender of furnishing “factually incorrect” compliance reports.
The RBI also defended its supervision on the grounds that the onus was on lenders and it was not possible for the central bank to audit over one lakh bank branches in the country.
“As regards the LoUs (letters of undertaking) issued for years without collateral by the PNB branch (in Mumbai) which went unnoticed, it is pertinent to recognise that primary responsibility of understanding the risks undertaken by a bank and ensuring that the risks are appropriately managed through necessary risk mitigants, controls, etc, clearly rests with the board directors of the bank concerned,” the regulator told a Parliamentary Standing Committee when RBI governor Urjit Patel appeared.
At the same time, it demanded fresh powers, arguing that the laws needed to be amended to give the regulator more teeth in supervising state-run banks. The RBI contended that SBI and other nationalised banks were not “banking companies” defined by the Banking Regulation Act and they were governed by other laws. It then listed nine powers that it lacked, including the mandate to appoint and remove public sector bank chiefs, license them, convene a meeting of their boards or supersede the board. Further, the RBI said it did not have powers to order voluntary amalgamation or winding up or seek the Centre’s help for suspension of a state-run bank’s business and preparation of a restructuring plan. (Agencies)