PNB fraud case: Suspension of 18 bank officials is not enough, role of higher-ups must be probed

So far, the state-owned Punjab National Bank (PNB), embroiled in the alleged Rs 11,360 crore Nirav Modi scam, has suspended 18 officials whom it found responsible for supervisory lapses. The managing director of the bank Sunil Mehta said the bank has been suffering from some illness since 2011, and now a surgery is being carried out to remove the cancer.

By sacking 18 employees, have Mehta and the PNB been able to fix responsibility? Of course not. As one of the whistleblowers Dinesh Dubey pointed out, the malaise runs deep in the banking system, and the suspension of junior and mid-level employees is just another distraction. Has the government been proactive in directing the Reserve Bank of India (RBI) and the banks involved in this daylight robbery to take action aimed at bringing the top level to justice?

A senior finance ministry official on the condition of anonymity said that action should be taken against those who scrutinised the Nirav Modi loan case, and against other top officials to whom internal audit reports of the bank were handed over year after year since 2011.

“Complaints of alleged irregularities and rip-offs are received every day in the ministry. The ministry’s job is to forward them for further action to the concerned authorities. I am sure that if any complaint was received by the ministry in the last couple of years, it must have gone to the concerned bank and the RBI for appropriate action,” the official said.

BN Mishra, General Manager, Corporate Communication and Marketing, Punjab National Bank defended the measures taken by the bank in handling the scandal, saying that it is already taking action against officers involved and will ensure that the guilty are not spared. Mishra told Firstpost that among the 18 suspended PNB officials, at least two are from the top management.

“The internal probe is still on and the suspension of more officials cannot be ruled out at this stage. We are determined to fix responsibility and appropriate action will be taken against all those involved in this case,” he said.

Former director of Allahabad Bank Dinesh Dubey said that Mehta is a good banker, but he must be aware of Mehul Choksi, the maternal uncle of Nirav Modi, as he was serving as General Manager of Allahabad Bank when the loan proposal of the Choksi-owned Gitanjali Gems had created ripples in board meetings in 2013. The alleged scamsters first targeted PNB in 2011 and Mehta assumed the charge of Managing Director and Chief Executive Officer in May 2017. During a press conference, Mehta maintained that his bank came to know about the scam only in the third week of January 2018.

“The big question is whether he knew about the Choksi saga while he was serving at Allahabad Bank till January 2016. And whether Mehta is going to take action against the top heads of the bank. At this juncture, it is all speculative and seems to be an incomplete picture of the entire scandal. The issue is not about NDA or UPA, but about the deep-seated corruption in the banking system,” the finance ministry official further added.

According to former director of Allahabad Bank Dinesh Dubey, the managing director of that bank was unhappy with his dissent note against the Gitanjali Gems proposal.

“The then Managing Director Shubhalakshmi Panse was upset with me and even expressed her displeasure in a board meeting held in Kolkata. I wrote to the finance secretary about our verbal duel,” Dubey told Firstpost.

Shubhalakshmi Panse served as the Managing Director at Allahabad Bank from October 2012 to 31 January, 2014. She was appointed as Independent Director, PNB Housing Finance Limited. She was also a member of a committee that was formed by the RBI in 2014 to review the governance of boards of banks in India. The panel had submitted its report to the then RBI governor Raghuram Rajan on 12 May, 2014. In the report, it had highlighted the rising problem of Non-Performing Assets (NPAs) with the public sector banks saying, “During 2013-14, loan asset quality in banks has deteriorated at a frightening pace….Oversight is also needed on the quality of the loan asset portfolio, as under-reporting NPAs and other stressed assets sensitively influences the integrity of financial reporting.”

Dubey, in his letter to the finance secretary, wrote, “On Friday 22 November, 2013, a meeting of MCBOD and other four committees, and also the board meeting was held at Kolkata at the Grand Oberoi Hotel. In the board meeting, there was an agenda regarding Geetanjali Jewellers. This agenda had already appeared in past board meetings more than four times. On each occasion, I expressed my dissent note. But again, this agenda was taken up in this meeting for approval. The CMD asked me to give my consent to pass it, but I refused and again expressed my dissent note. The CMD also said that I complained against him to the finance secretary. I had to explain and submit to him a three-and-a-half page note on this issue. One shareholder director became angry on me and one other bank nominee director said to me, ‘Ghar ki baat ghar me hi rehne dete. (It was a matter within the household, and you should have let it remain so).’ To this, I replied that my appointing authority is the finance department of the Government of India and I am liable to them, while your appointing authority is the board of the bank. I asked why my views on this agenda were been continuously ignored. On this, the same board of directors asked me what the remedy can be with respect to approving this agenda. To this, I asked how they can convert an LC without approval from the board and said that it was against the norms. If they were to do this on their own, why was the board’s approval required? They responded saying ‘Forget about what happened and please tell us what options are there now.’”

Dubey later claimed that he was forced to resign by the government and top officials of the bank.

Speaking to Firstpost, the then Financial Services Secretary Rajiv Takru denied that any pressure was put on Dubey to quit. Takru served in the department, which covers the functioning of banks, financial institutions and insurance companies, from February 2013 to February 2014.

“I met him (Dinesh Dubey) for the first and last time when he came to submit his resignation letter. I remember that he wrote the resignation letter on my table in Hindi and cited personal reasons for quitting the post. He did not say anything about problems in the bank and neither did he mention anything related to Gitanjali Gems. I had put up his resignation letter to the finance minister and days later, it was accepted,” Takru said.

Top sources in the finance ministry said that if Dubey had complained about the scam looming large over Allahabad Bank, some action must have been taken by the RBI and the bank.

“We need to check the records related to the complaint against Gitanjali Gems. However, the RBI must have the Action Taken Report in this regard,” sources said.

Can investigative agencies fix responsibility?

The Central Bureau of Investigation (CBI) has registered an FIR against the Mehul Choksi-owned Gitanjali Gems on the basis of a complaint filed by the PNB authorities on 13 February 2018. The agency said that it will probe into allegations leveled by Dubey against Allahabad Bank officials. It also said that the records related to the period mentioned by the whistleblower and former director will be examined after collecting the documents.

Sources in the probe agency said they have conducted searches at the locations belonging to the Gitanjali Group, other directors of the linked companies, factories and residential premises.

“So far, searches have been conducted at Mumbai, Pune, Surat, Jaipur, Hyderabad and Coimbatore. We have covered almost 20 locations and seized some crucial documents related to the probe,” CBI sources further added.

The Enforcement Directorate (ED) has already issued summons to Nirav Modi and Mehul Choksi under the Prevention of Money Laundering Act, even as the Ministry of External Affairs has said it is not aware about their location. The ED raided 35 locations linked to Nirav Modi on Friday and seized diamonds and gold worth over Rs 500 crore. So far, the agency has seized assets worth Rs 5,600 crore.

“We will look into what has happened in the case since 2011. We are likely to quiz bank officials soon. In the next few days, we will start recording their statements,” the sources further added.