The fraudulent jeweller and his accomplices exploited regulatory and technical loopholes in Indian banking to swindle money from PNB and other banks; routine state vigilance in such activities of all nationalised banks not being a feasible proposition; the only solution is privatisation

The Narendra Modi government cannot escape the word this dispensation dreads: privatisation. The nation has witnessed enough of “strategic disinvestment” — which often means one government concern buying up another — and this is no solution to the kind of fraud Nirav Modi committed. It is a typical case of cheating in banking procedures that no government can keep track of, more so when even the regulations of the Reserve Bank of India are ridden with holes. As explained in an elaborate article on this site yesterday, The messaging service of the Society for Worldwide Interbank Financial Telecommunication was used to process the letters of undertaking that the dubious jeweller had sought from the Punjab National Bank. The SWIFT left no trail in the bank logs. Showing these LoUs to some foreign banks, Nirav Modi secured from them letters of credit, the amounts of which were delivered to his fictitious suppliers in cash. This points at some overseas accomplices of the jewel designer besides the bank officials in Mumbai whom he had a truck with. Because the staff manning the fraud changed either in the local branch or headquarters of the PNB or in the bank overseas where the Indian bank held a mandatory Nostro account, the plot unravelled. However, since the embezzlement had gone on for far too long, there was a humongous amount that the PNB has to cough up owing to the LCs issued against its LoUs. This downright technical loophole in the system is for the RBI to plug. It is beyond the wherewithal of the Finance Ministry, as the PNB might not be the only bank that has been up to this mischief. Owning 75% of the stakes in public sector banks does not enable the government to monitor the routine activities of each. Nevertheless, India’s government would put even some communist nations to shame in running the business of banking.

While Nirav Modi has added to the PSBs’ NPA burden, his case cannot be clubbed with the likes of Vijay Mallya whose influence in the then government had made state-run banks benevolent towards him. However, pretending to not appreciate the technicalities, the Indian National Congress in opposition has not lost the opportunity to corner the ruling Bharatiya Janata Party. Betraying as much of naïveté, the BJP has hit back, accusing the scandal to be of the INC’s doing. This burlesque slugfest between two wily political parties is clearly an exercise of obfuscation. The socialists — the term here is a euphemism for ‘business control freaks’ — do not want the people to know where the problem lies, lest they should have to give up their hold over people’s money that they wish to use forever for the purpose of political manipulation and manoeuvring: buying farmers’ votes, blackmailing corporate houses, sponsoring doles and freebies, funding subsidies (in other words, robbing Ram to pay Shyam), exploiting student and trade unions, etc.

Executing the devious plot that the nexus of some bank employees and Nirav Modi hatched without detection for such a long time is impossible if the bank is privately owned. For, in a private or multinational corporate bank, the authority is never diluted to the extent of making a wrongdoer difficult to trace. The fear of losing the well-paid job for the slightest hint of corruption is a great deterrent in that domain. And despite that, when private banks indulge in fourberie, they are the private owners of those banks that lose the money on getting caught [Even in the security scam of the 1990s, the PSBs were greater culprits than their multinational counterparts]. Taxpayers are not fleeced to keep the bank running, which is now happening in the name of “restructuring” bad loans. One hopes basic economic education reaches the farthest corners of the population so that the people pressure all political parties to end this ginormous racket called socialism. Until it does, the educated class must unitedly raise their voices to a din to force the government to privatise all banks.