Follow the money {Banking Sectors}

Context

Asset recovery is more important than finding and arresting the bank scam accused.

The breathtaking scale of the Punjab National Bank (PNB) fraud, allegedly involving Nirav Modi and his associates, has shaken the public confidence in national banks.

Whats the issue?

From the First Information Report (FIR) filed by PNB, it is apparent that a substantial amount of money has been lent by Indian banks abroad. Relying, on the unauthorised letters of undertaking (LOU) provided by the PNB, Allahabad Bank and Axis Bank, based in Hong Kong, have lent money to Nirav Modi via his three firms “Diamond R Us”, “Solar Exports” and “Stellar Diamonds”.

India must learn from the Vijay Mallya case that seeking extradition of a suspect under a criminal cooperation procedure between countries will not automatically lead to the recovery of monies lost by the public.

Solution 

  • Along with the “resolution” process in some 40 defaulting companies being taken up under the new Insolvency and Bankruptcy Code, was seen to go some way in addressing their massive bad loans problem.
  • With the broader economy, too, gradually recovering from the disruptions of demonetisation and the GST, the stage was set for PSBs to make adequate provisions against non-performing asset accounts and resume lending.
  • Corruption cannot be rooted out of Indian society with a catchy slogan but every effort should be made to bring public sector banks up to the level of the private sector, if only in terms of prevention of frauds. This will break a crucial link in the chain and make it tougher to pull off large scale scams.
  • The mandate of these new management should be to clean up the mess swiftly and move towards consolidation within the sector.
  • We need only five or six PSU banks and eventually market forces will ensure that their share is whittled down to less than half of the sector. A process of virtual de-nationalisation of PSU banks, at least at the operating level, has to be the first step.

Source: Indian Express

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