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The Great Bank Robbery: This is not the title of a new Big Budget movie, like Saaho, which reportedly grabbed 10,000 screens across the world. It is related to real, not reel,life.

The Saaho in economy  was the big ticket reform of  10 PSU Banks merger into four Bahubalis,as painted by some media, that was announced by Finance Minister Nirmala Sitharaman, on August 30, to grab media headlines. Significantly  the propaganda blitz was clouding two other news items, one of them being GDP growth rate touching a new, six-year low of 5 percent in Q1 of 2019-20.  We are  discussing below the other news that is drowned in this furore.

“Indian banking system detected Rs 71,500 crore worth of frauds in financial year 2018-19 which to put in scale is slightly more than the Rs 71,000 crore recapitalisation package planned by the government to revive the health of its public-sector banks,” reported EconomicTimes dated August 30,2019. This was according to RBI’s annual report released on August 29.

Mark the words detected. It is not the figure of frauds committed :

“Another point of concern for regulators and policymakers came from the fact that it took banks an average of nearly 2 years to detect frauds. Large frauds above Rs.100 crore took banks nearly four and a half years to detect, RBI said. Nearly Rs 52,000 crore worth of frauds detected were classified as big frauds.”(ET)

The report said that the average lag between the date of occurrence and its detection by banks was 22 months. So more can be expected in future.

Bank employees know how at the end of everyday they struggle to reconcile the transactions and close the account. But still, such a big fraud takes place and it takes so long to detect the fraud!

And this happened amidst reports of  frantic activity, by CBI, ED and such other agencies, of digging into  historic  cases  of  past,  committed during previous regimes. And happened even while the present regime has claimingly adopted a ‘zero tolerance’ policy for financial crimes! 

One can have an inkling of how this happens from the following:

“Frauds relating to card/internet and deposits constituted only 0.3 per cent of the total value of frauds in 2018-19,” said the Report: “Most of these frauds were because of cheating and forgery, followed by misappropriation & criminal breach of trust, RBI said. Small frauds less than Rs.1 lakh were just 0.1 percent of the amounts involved.

“In terms of area of operations, frauds related to advances constituted the preponderant share of the total amount involved in frauds in 2018-19, while the share of frauds in off-balance sheet items declined from a year ago,” according to RBI.

The RBI, in the report, said that they also subjected 57 banks through IT examination to check their cyber-security preparedness and compliances.
“Targeted thematic examinations were also carried out, focusing on applications, infrastructure and systems used by the banks.”

So it is despite hytech cyber-security. This shows the inbuilt  flaws in e-banking, perhaps well programmed by the bigwigs in cooperation with our e-sharp big techies.

Obviously big sharks are involved and they are very smart in the act. Unless the top echelons of banks, as well as of the ruling establishment, are not involved, such scale of frauds can not take place, and can not remain undetected for as long as more than four years. There is good growth rate too:  

“Overall, 3,766 incidents of frauds were detected in FY19, a 15 percent spike from a year ago, while the losses incurred saw an 80 percent rise from the last year, even as FY18 saw the most infamous banking fraud in India’s history where Nirav Modi siphoned off nearly Rs 13,000 crores from Punjab National Bank in February 2018,” said the Report.

(See : https://economictimes.indiatimes.com/news/economy/finance/bank-fraud-touches-rs-71543-crore-in-2018-19-rbi-annual-report/printarticle/70895326.cms)

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“These practices amount to a looting of our country’s future”: Dr Urjit R Patel

‘In plain simple English, these practices amount to a looting of our country’s future by some in the business community, in cahoots with some lenders,’ said Dr Urjit R Patel, who as we know was the first RBI Governor who resigned a few months later in December 2018.

We at the RBI feel the anger, hurt and pain at banking frauds was the heading of a news report (March 19, 2018) that quoted the then RBI Governor Dr Urjit R Patel.

(The above is from edited excerpts of a speech ‘Banking Regulatory Powers Should Be Ownership Neutral’ by Dr Urjit R Patel, on March 14, at the Gujarat National Law University, Gandhinagar. Incidentally , Nirav Modi and his uncle Mehul Choksi operated from there.)

“NPAs get seasoned for 2 to 3 years before they are reported as fraud”

Dr Patel explained, in the speech, the link between NPAs and frauds, and gave some details:

‘Moreover, almost all corporate loan related fraud cases get seasoned for 2 to 3 years as NPAs before they are reported as fraud.’

Let me now turn to an issue of greater magnitude and more significance than the most recent banking fraud. Its magnitude is larger than Rs 8.5 lakh crores of stressed assets (NPAs) on bank balance sheets and its significance stems from several practices in promoter-bank credit relationship that need immediate attention.

The RBI’s Financial Stability Report of June 2017 (Section VII. Frauds, Para 3.36) clarifies that there is a link between bank frauds and this stressed assets problem:

‘One of the emerging risk to the financial sector is increasing trends in frauds in commercial banks and financial institutions. During the last five financial years, frauds have increased substantially both in volume and value terms.’

‘During this period, while the volume of frauds has increased by 19.6 per cent from 4235 to 5064, the value (loss incurred) has increased by 72 per cent from Rs 97.5 billion (Rs 9,750 crore) to Rs 167.7 billion (Rs 16,770 crore).’

‘Share of frauds in (loan) advances portfolio continued to be high at 86 per cent of the frauds reported during 2016-17 (in terms of amount involved)…’

More than an year after  that speech, now we saw how the frauds continued and added up.

It appears even while the country was busy in its electoral binge,during last summer, the  fraudsters were busy looting the banks. After all, the juggernaut of  democracy needed to be fueled. Rs. 80,000 crore was an estimate of amounts spent for the election that delivered a government committed to swatch Bharat. More than 75 percent of the spending this time was by BJP alone.

Interestingly,over 90 percent of these losses were to the governmentowned banks while the share of incidents that emanated from these lenders was at 55.4 percent, according to the RBI’s annual report.

And this is how our system recently celebrated 50 years of nationalization of banks! In popular parlance in India nationalization has a different, not a funny, connotation of swindling  funds and  resources.

Indian Bank, PNB, Andhra Bank, Canara Bank, Syndicate Bank are among those having  a good share in the frauds. And all of them are among entities now merged. The fraud has been broad-based. We do not know how they will be pursued now.

Not that private banks are free from the malady.

ICICI Bank is a leader with top score both in the number of frauds (6811) and amount involved (Rs. 5033 cr), in the last 11 years, 2008- 2018, as per RBI data. The figures for HDFC Bank are 2497 and Rs 1200 cr, respectively. Around 30 to 40 private banks collapsed, but they were not liquidated; they were taken over by another bank.

Some 400 Indian companies have been classified as wilful defaulters, economictimes.com reported (March 15, 2018).

“Who are the defaulters? All from the private sector. Is the name of any public sector organisation in the list of defaulters? No,” said CH Venkatachalam, General Secretary of the All India Bank Employees Association.

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Bank frauds involving  Rs one trillion in the past five years  : PTI

Prime Minister Modi spoke of a target of  5 trillion dollar economy in five years. But it appears much of the target is reached this way too! Defrauded money after all enters the market and adds to the GDP!

This is not as if the frauds happened or detected only this year. Press Trust of India reported last year ( on May 2, 2018):  :

Over 23,000 cases of fraud involving a staggeringRs one trillion have been reported in the past five yearsin various banks, according to the Reserve Bank of India (RBI).

From 2013 to March 1, 2018, as many as 23,866 cases of fraud, of Rs 100,000 or above in each case, were reported.

A total of 5,152 cases of fraud, up from over 5,000 cases in 2016-17, were reported in banks from April 2017 to March 1, 2018, it said in reply to an RTI query filed by this correspondent.

The highest ever amount of Rs 28,459 crore is said to have been involved in these cases of fraud reported from April 2017 to March 1, 2018, the central bank said.

In 2016-17, banks had reported 5,076 cases of fraud involving Rs 23,933 crore.

A total of more than Rs one trillion was involved in all the cases put together, according to the RTI reply.

Giving the break-up, the RBI said 4,693 such cases (involving Rs 18,698 crore) and 4,639 cases (involving Rs 19,455 crore) were reported in 2015-16 and 2014-15 respectively.

In 2013-14, banks reported 4,306 cases of fraud, involving Rs 10,170 crore, the central bank said.

Among the prominent is the over Rs 13,000-crore fraud in the Punjab National Bank (PNB) allegedly committed by diamantaire Nirav Modi and his uncle Mehul Choksi, the promoter of Gitanjali Gems.

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“The situation deteriorated under the Modi govt.” : Prasenjit Bose

Economist Prasenjit Bose, who had filed an RTI plea on banking losses/NPAs etc, was pointedly asked by an rediff.com interviewer. Excerpts from the interview :

Are you saying the RTI findings indicate loan frauds are happening under the Modi government as well, and not just the UPA (United Progressive Alliance) government?

He replied : “Precisely, that is what the data suggests.They are saying these loans may have originated under the UPA time, but have been now caught by the Modi government.That is the official argument. But I feel this is a completely wrong argument,” said Bose, who wanted to know the details of losses and loan frauds that Indian banks have facedin the last 10 years. He was shocked by the Reserve Bank of India’s reply.

“I have already sent a note to the RBI asking for clarification on this data, asking what is the maturity factor of these (fraudulent) loans.

Did they originate before Modi government’s tenure?I am waiting for an official response from the RBI now.

“But if one uses common sense, then you will find out that the RBI had already revised its guideline in 2016 on loan frauds.It has put in place a series of new measures including very stringent measures, which has been criticised as being kind of anti-business as it makes difficult for businesses to take loans, red-flagging of accounts and early warning system and so forth and so on.After that, in 2016, the figures of loan frauds are still going up.”

What is the loan frauds figure after the 2016 RBI guidelines?

“It has crossed Rs 20,000 crore each year after 2016.

From April 2014 to March 2018, Rs 77,000 crore (Rs 770 billion) worth of bank loan frauds took place under the Modi government.”

Is the Modi government failing to tackle loan fraud?

The situation has deteriorated under the Modi government.

The RBI data states that under the Modi government, Rs 77,000 crore loan frauds have been detected.The data is not showing when it originated.

The prime minister told a rally in Odisha how he is tackling corruption in the banking sector… how so many companies have been forced by the government to repay their loans worth Rs 80,000 crores.Now if a company is repaying a loan, that is not news because the companies have to repay the loan that they take.

The news is when companies do not repay the loan.

http://www.rediff.com/business/interview/rs-77000-cr-bank-loan-fraud-took-place-under-modi/20180529.htm?print=true

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Action taken by Modi Govt? And frauds still going on ?

After 31 top defaulters flee,India seeks to shut the gates : this headline of a report by Bloomberg  in economictimes.com (March 15, 2018) sums up the situation.

Some 31 Indians have fled abroad to avoid prosecution, lawmakers were told in parliament.

“The government has compiled a list of 91 people it is considering barring from leaving India because of their involvement with companies that have defaulted, said a person with knowledge of the matter, ” said the report. And none was arrested. The list may have been leaked (transparency?) and more may have fled, no news about it.

Modi govt claimed how NDA-2 improved in Ease of Doing Business Index. And how BJP and NDA were for taking forward liberalization and reforms. This can be understood better in relation to these  banking frauds.

‘This government wants to make India a gambling den’: AIBEA GS

This is the title of an interview given last year by C H Venkatachalam, General Secretary, All India Bank Employees Association(AIBEA), a leading Union of bank employees across India. It was published by rediff.com, on March 14, 2018. He explained:

Banks are audited internally and externally regularly. How come a scam of this magnitude was not detected by anyone?

The RBI doesn’t audit all the branches in the country; only a few branches are selected randomly.It is definitely the fault of concurrent auditors who are external auditors not to have found a scam like this.The practice of the chartered accountants is that they send their apprentices who do bank branch auditing like routine work.

Earlier, the RBI appointed external auditors from a very efficient panel of auditors. After liberalisation, the selection of auditors was transferred to the banks which is a serious flaw.

Only when somebody from outside checks, faults are detected. But when the banks themselves appoint the auditors, the result is also on expected lines.

This flaw was pointed out at that time itself to the government by us, but they were of the opinion that it was not necessary for the RBI to appoint the auditors.

The LoUs were not shown up by the software…Even more shocking was that the password which was supposed to be a secret was shared by everyone in the branch.It is said that even the companies owned by Nirav Modi had this password.

If this was what they were doing, what kind of banking is this? It is a total failure of banking itself.

http://www.rediff.com/business/interview/this-government-wants-to-make-india-a-gambling-den/20180314.htm

LoUs : The Modus operandi of fraudsters

What is it?thehindubusinessline.com explained it with the example of Nirav Modi. This is only one way how banks are looted:

Technically, Letter of Undertaking(LoU) is a bank guarantee under which a bank allows its customer to raise money from another Indian bank’s foreign branch in the form of short-term credit. The loan is used to make payment to the customer’s offshore suppliers in foreign currency. The overseas bank usually lends to the importer based on the LoU issued by the importer’s bank.

Nirav Modi, the Indian billionaire jeweller has allegedly defrauded Punjab National Bank of $1.77 billion (Rs.11,400 crore), with the help of conniving bank officials with Gokulnath Shetty, deputy manager at PNB, being named as one. The massive fraud was perpetrated for over seven years by Nirav Modi and his firms, by procuring LoUs from PNB.

The Bank messages are sent through SWIFT — an inter-bank messaging network for securely transmitting instructions for financial transactions.

Theoretically, such SWIFT instructions need to be recorded in a bank’s core banking system. But thanks to the connivance of bank officials at PNB, the actual LoUs issued over the past seven years to Nirav Modi managed to escape scrutiny.

These guarantees never figured in the bank’s books. According to the CBI FIR filed by PNB, a total of 153 LOUs were issued in 2017, amounting to a little over Rs. 3,000 crore.

The Nirav-PNB scam has only brought to light another festering issue within PSU banks -absolute failure of control systems and governance structure. And this time, auditors and even the RBI, which scrutinises banks’ books regularly through various audits, are answerable.

(www.thehindubusinessline.com)

Perhaps this is Ease of Doing Business, and transparency!

One can recall  the high drama that preceded ex-Finance Minister Chidambaram’s arrest, and how Courts acted in that case, in the face of government’s attitude.   

The above mentioned PTI report (May 2, 2018) also said something more about action taken:

The CBI had recently also booked top officials of two public sector banks, a former CMD of the IDBI Bank, former Aircel promoter C Sivasankaran etc in connection with a Rs 600-crore loan fraud in the IDBI.The CBI has named 15 bank officials who worked at senior levels at the IDBI in 2010 and 2014 when loans were sanctioned. This was on a complaint from the Central Vigilance Commission.

Managing Director and CEO of Indian Bank Kishor Kharat (who was then MD and CEO of IDBI Bank) and his counterpart in Syndicate Bank Melwyn Rego (then Deputy Managing Director in IDBI Bank), along with then Chairman-cum-Managing Director of IDBI Bank M S Raghavan, have been named in the latest FIR filed by the CBI.

There was an earlier report of 23rd January 2018, also by PTI :

 A former Andhra Bank director (Anup Prakash Garghas) been sent to judicial custody (JC) by a court here following his arrest and interrogation in connection with a money laundering probe in an alleged Rs 5,000-crore bank fraud case involving a Gujarat-based pharma firm.Judge Sidharth Sharma sent him to custody for two weeks . Garg was held by ED on January 12, the second arrest in the case. Garg was arrested under Prevention of Money Laundering Act (PMLA). He was named as an accused in the case by the ED as well as the CBI. Payments amounting to Rs 1.52 crore were made to Mr Garg, Andhra Bank, it was found, between 2008 and 2009.

Obviously it is a small fish, and of  the past. But whats happening later?

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Bank frauds are apart from NPAs, and aresystemic: Prasenjit Bose

Bank frauds, it should be noted, are different from NPAs. They are an additional malady. What Bose said is revealing:

According to government data, the gross non-performing assets (NPAs) of all banks in the country, amounting to Rs 8,40,958 crore in December 2017, were led by industry loans followed by those in the services and agriculture sectors.The highest amount of gross NPAs was for the country’s largest lender, the State Bank of India, at Rs 2,01,560 crore.

Among the others, the NPA for PNB stood at Rs 55,200 crore and for IDBI Bank, Rs 44,542 crore. Bank of India had NPAs worth Rs 43,474 crore; Bank of Baroda, Rs 41,649 crore; Union Bank of India, Rs 38,047 crore; Canara Bank, Rs 37,794 crore and ICICI Bank, Rs 33,849 crore, according to data presented by Minister of State for Finance ShivPratap Shukla in the Lok Sabha on March 9.

Bose explained, in the interview, the phenomenon:

Surprisingly, on loan frauds they gave data till 2017-2018.

This was not public data and was also not available on the RBI Web site.

I had sought the last 10 years data and I was shocked to see the deteriorating figures, which need to be brought into the public domain.

It is a common form of financial fraud.It is not that it is happening only in India, but all over the world.These kinds of frauds have now got sophisticated dimensions and it is expected to happen in huge financial dimensions in a country like India.

The problem is that these loan frauds are happening when the banking sector is already under stress.Already the banks’ financial balance sheets are stressed because of the massive buildup of NPAs.

Loan fraud is quite different from NPAs.Generally, NPAs happen when one takes a loan and fails to repay, but not wilfully, and it is not a criminal act.It is a business decision that has gone wrong because that particular firm failed in the market.Therefore, they are unable to repay the loan and that becomes an NPA.

But in the case of a loan fraud, it is criminal intent. Like the Nirav Modi case.It is really surprising that there is no crackdown happening on loan frauds.

To begin with, the plan was to rip off the public sector banks. And this is not specific to limited public sector banks only.There is a racket going on and it is too big to ignore.Last year Rs 20,000 crore (Rs 200 billion) was ripped off from the banking system. This is systemic.

What action has been taken after finding out about the Rs 77,000 crore of loan frauds? Bose said:

That is the question even I am asking!How many people have been arrested?

How many people have been prosecuted?There is absolutely no answer. I am waiting for the RBI to respond.

In the Nirav Modi case, the argument was that those loans were taken during the UPA regime — but it continued under the Modi regime too.Therefore, you cannot call that a UPA scam only, because the scam was going on under the Modi government too.

The RBI is autonomous. Why bring the Modi government into this?

This is corruption.This is a crime.

The RBI can be held accountable under regulatory norms and oversight in terms of a banker abiding by the guidelines.

If the corruption is on this scale, then the RBI does not have, under them, the police, enforcement directorate or vigilance departmentThese all come under different ministries of the central government.The CBI (Central Bureau of Investigation) must get involved because they are probing tax defaulters, and the enforcement directorate must also get into this.

Are there any details about the fraudsters?

No.I just got one sheet of answer from the RBI.The Hindustan Times reported that under the UPA, if you see annual figures then the number of loan fraud cases per year was around 2,000.Under the Modi government the number is more or less the same.

Are these new people or the same old people who are doing loan fraud?

That is the point.Earlier, there were 10,000 cases and the total amount of loan fraud was Rs 22,000 crore.Now, from 2014 to 2018 under the Modi government, the loan fraud amount is Rs 77,000 crore.

How come no one knows the names of the people who have done this fraud?

Actually, what it shows is the complete distortion of democracy.

Democracy says every citizen must be treated as equal.

Here, you have the classic case when farmers don’t repay their loans, they commit suicide.If the middle class fails to pay their EMI, their homes and cars get confiscated.

But here corporate groups have taken huge loans which they have not repaid and turned into NPAs.So many people should have been arrested, but not a single person has been arrested.

Why is the government not disclosing the names of these fraudsters?

There is complete lack of transparency by the Modi government.

The government is busy trying to spin the data by saying they are doing a great job.Every time someone points out a problem to the Modi government, they are in denial.They then will go to alt-facts by giving another data which is totally unrelated without responding to this particular data.

They then change the narrative and shift the goal post.

Here every year people are running away with Rs 20,000 crore by doing loan fraud.Lack of transparency also shows complicity.It is crony capitalism.

“They are big businessmen and they are politically connected people like Nirav Modi and Mehul Choksi so they are being protected by the government.”

The CBI, ED etc agencies and relevant laws and Courts are run by remote control, it is by now clear that they are very selective in their omissions and commissions.

Whatever is needed to reach the 5 trillion economy must be facilitated, that is the determination of the powers that be to put India at the top of the table.

 Ramakrishnan is a political observer


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