The unravelling of fraudulence at the Punjab National Bank tells the story of nothing but a criminal offence. Bank fraud is a criminal act that occurs when a person uses illegal means to receive money or assets from a bank or other financial institution. For this reason, bank fraud is sometimes considered a white-collar crime. PNB scam will definitely fall into this category. In what could be the biggest banking fraud in India, the state-owned bank acknowledges that it has detected a $1.77 billion (Rs 11,500 crore) worth of scam in which billionaire jeweller Nirav Modi, whose jewellery creations are popular among global celebrities, allegedly acquired fraudulent letters of undertaking from one of its branches for overseas credit from other Indian lenders. Three other jewellers, Gitanjali, Ginni, and Nakshatra are also under the scanner with the CBI and ED looking at their arrangements with various banks and end use of money. Last week, PNB had lodged an FIR with the CBI stating that fraudulent LoUs worth Rs 280.7 crore was first issued on 16 January. In the complaint, PNB had named three diamond firms — Diamonds R Us, Solar Exports, and Stellar Diamonds — saying they had approached it with a request for buyers’ credit. This could be the biggest banking fraud in India as its quantum was bigger than an estimated 9,000 crore scam at erstwhile Satyam Computers.
However, we have witnessed many scams like PNB fraud unfolding in the banking system. They are the byproducts of a massive loan distribution by public sector banks under the second government of the United Progressive Alliance. Outstanding loans almost tripled during the UPA regime. While mainstream media spotlight often falls on Vijay Mallya, there has been conspicuously less attention devoted to Winsome Group promoter Jatin Mehta who, going by some estimates, may be the biggest defaulter in Indian corporate history. Winsome Diamonds had raised Rs 3,420 crore from 14 different banks by 2011. And these loan limits were raised again to Rs 4,617 crore by the first quarter of 2012. The credit was given to three group companies: Rs 4,366 crore to Winsome Diamond & Jewellers, Rs 1,932 crore to Forever Precious Diamond and Jewellery and Rs 283 crore to Suraj Diamonds. In early 2014, the CBI has already started investigating Winsome Diamonds and Jewellery ― formerly known as Su Raj Diamonds, but now better known as India’s second largest corporate defaulter after Vijay Mallya’s Kingfisher Airlines. But after three long years, the Central Bureau of Investigation finally booked six cases against the Winsome Diamonds and other group companies in April 2017. In 2015, Bank of Baroda — another public sector bank — had brought to light a scam in which two Delhi-based businessmen cheated it of Rs 6,000 crore (slightly less than $1 billion at that time). Investigations revealed major irregularities, as the forex transactions were done mainly via advance remittances for import, through newly-opened current accounts. Heavy cash transactions — sometimes four or five times a day — were also noticed. The two businessmen ― Manmohan Singh Sehgal and his son Gagandeep Singh Sehgal ― were arrested for violating provisions of Prevention of Money Laundering Act (PMLA) by illegally routing about Rs 245 crore from BoB to entities in Hong Kong through shell companies. The accused had made fake accounts at the public sector bank and these accounts were used to remit funds to shell companies in Hong Kong. In yet another fraud case, the CBI arrested the chairman of a prominent Kolkata-based Shree Ganesh Jewellers, Nilesh Parekh, for allegedly cheating a consortium of 25 banks led by the SBI of Rs 2,223 crore. He was arrested from the Mumbai airport upon his return from Dubai. Parekh had fled India after the CBI registered a case against him in July last year and a lookout circular was issued against him. Apart from Parekh, the CBI also booked his brother Kamlesh, a promoter in Shree Ganesh Jewellery House, Kolkata, and other promoters. Kamlesh is said to be settled in Dubai.After taking the loan from the consortium, which comprises 20 public sector banks, Nilesh, and the others diverted the money to Hong Kong, Singapore, and the UAE.
Modi government has inherited a legacy of huge bad loans from public sector banks which has not only slowed down the economy but many scams are unfolding. Asset quality review by RBI has unearthed almost 10 lakh crore of stressed assets in the banking system. All efforts to reform and capitalise these banks have failed to produce results and we are witnessing slowest phase of credit growth in the banking system in almost six decades. As banks move with bankruptcy code to recover these loans, we may see much more PNB and Bank of Baroda type scam. “This (investigation) is a part of the cleanup drive that started with AQR (Asset Quality Review) in 2015. Post clean up, this is going to make banks clean forever, healthy, responsive and enable them to provide hassle-free banking to all honest borrowers,” Finance secretary Rajiv Kumar said.