Shri Arun Jaitley
Honourable Finance Minister
Government of India
Re LOU related scam in Punjab National Bank
It is being widely reported in print and electronic media that a few diamond merchants have committed fraud of fraudulent letters of undertaking in Punjab National Bank which is likely to cause financial loss of about Rs. 11300 crores or even more to the Indian banking system. It is also reported that the concerned diamond merchants left the country after the scam got unearthed. It is also being claimed in media that it is the largest banking scam in the history of Indian banking. Simultaneously, some other frauds like Rotomac etc. are also appearing in newspapers.
2. These disturbing reports about Indian banking system have created panic like situation among the common man in particular the senior citizens/ retirees who keep bulk of their savings in the form of bank deposits and are dependent on interest income for managing their day to day life. This panic like situation gets further fuel by rumours widely in circulation that more scam are in store, public sector banks may place some restrictions on withdrawal of deposits as done during demonetisation period etc. As you know there are already many adverse reports in media about public sector banks because of very high NPAs, many of these banks being placed under PCA, increasing losses of PSBs quarter after quarter and the largest bank of the country SBI also reported loss for the quarter ended December, 2017.
3. However, we do not find any official version on the scam and other adverse news from Finance Ministry, Reserve Bank of India , bank managements, Indian Bank Association to give official position on these incidents to calm the sentiments of the public and to create confidence among them in banking system. We therefor request to ask these agencies to release official statement/ advertisement to give real position in the matter for the knowledge of the public. Our organisation represents about 1.70 lakhs retirees who have kept their savings in PSBs and are feeling highly concerned on getting such disturbing and adverse news with added input of panic rumours.
4. We also find from newspaper reports that PNB management has issued orders to transfer 18,000 staff as a preventive measure from vigilance angle. While we appreciate govt./ management concern on preventive measures, we strongly oppose such large scale disturbance of manpower which will result into innumerable human problems, demotivate the staff and huge financial cost involved in such transfers without serving any real purpose. It may be added that the same staff brought first prize for the bank from CVC in 2017 only.
c.c. to The Governor , Reserve Bank of India
c.c. to The Chairman Indian Banks’ Association
c.c. to The Convenor UFBU
ALL INDIA BANK EMPLOYEES' ASSOCIATION
Central Office: “PRABHAT NIVAS” Regn. No.2037
Singapore Plaza, 164, Linghi Chetty Street, Chennai-600001
Phone: 2535 1522 Fax: 4500 2191, 2535 8853 Web: www.aibea.in
e mail ~ email@example.com & firstname.lastname@example.org
Shri Arun Jaitley,
Hon Minister for Finance,
Govt. of India,
Punjab National Bank and its ‘NIMO’nia
We write this communication to you with a lot of agony and anguish over the recent fraud and day-light robbery that has taken place in a Mumbai Branch of Punjab National Bank, an otherwise well-managed Public Sector Bank and the reported magnitude of Rs. 11,400 crores in the fraudulent transactions via unathorised LoUs. It is agonising because such an alarming fraud has happened in a major Public Sector Bank.
Besides the possible loss to the Bank on account of this fraud, this would also seriously affect the reputation of public sector banks and people’s perception about our Public Sector Banks.
Ever since major private sector banks were nationalised in 1969, our Public Sector Banks have travelled a long way in changing the profile of banking in our country. From class banking in those days, it has transformed into mass banking today where larger sections of common have access to banking services. Under Jan Dhan Yojana, banks have reached further population hitherto not covered by bank accounts. As you have been rightly acknowledging in many fora, the Public Sector Banks alone have taken this task seriously with their commendable achievements in mobilising such accounts.
Public Sector Banks have not only become the reservoirs of pooling people’s hard-earned savings but also the storehouse of their faith and confidence. Such incidents will act as a damper and dent the image of PSBs.
From All Indi Bank Employees Association, as the largest and oldest trade union of bank employees in our country and as one deeply committed to the efficacy and success of public sector banking, we may clarify to you and through you to the people of this country at large, that we do not support any type of such frauds which will harm the interest of the Banks, rather we denounce such acts.
But, it is a sorry state of affairs that with all the time tested rules, systems and procedures, such deceit and racket could happen in Banks, which we believe is mainly due to gross neglect of all necessary supervision, control and monitoring at various levels of the Bank including at the top management level.
We find that there are attempts afoot to explain the entire fraud as one committed in one Bank in one Branch by some lower level staff but it would be a total travesty of truth, because the transactions of this nature and magnitude cannot be confined to the precincts of a branch alone. Many other levels of checking,
supervision and control aspects are involved in these types of sensitive transactions and what has happened is a combination of systemic and systematic failure of these control aspects.
We strongly demand that responsibility and accountability for the fraud should not be narrowed down to the desk officers in the branch but must necessarily and essentially cover higher levels of supervisory authorities and top officials for bringing the Bank to such utter shame in the eyes of the people because of their gross negligence.
We also find that only some branch level staff are placed under temporary suspension by the management ( which ought to be ) but which gives an impression that no higher-ups are part of this nasty episode.
Sir, matter requires your personal intervention to ensure that no one, however higher in authority they may be, is spared at all. All those who are suspected to be involved or found responsible for such a glaring negligence including the top management should be kept out from the scene till everything is properly investigated.
Singling out the lower-level staff has demoralised the workforce in all the Banks and they feel that when good things happen garlands go to the top bosses and when there is trouble, lower-level staff are made to bear the burden of all ignominy. We are sure that you will agree that this should not be so.
You are fully aware that there is a strong audit system in the Banks like daily concurrent audit by an outside Chartered Accountant, periodical internal audit, revenue audit, external audit, statutory audit, RBI audit, Long Form Audit, etc. If audit cannot help to detect such fraudulent transactions of huge proportion, it loses its meaning. Earlier RBI was appointing Auditors to audit the Banks after lot of scrutiny. Now, under the liberalisation era, Bank top managements are allowed to appoint External Auditors of their own choice. Our repeated objections in this regard were ignored.
Sensitive transactions like reconciliation of Nostro account, etc. are always on priority radar of the Banks and RBI as well. If they have been overlooked, then by whom and why? RBI cannot escape from answering its accountability in this episode.
There is another aspect that we would like to bring it your kind attention. The scope of functioning of the Boards of Directors of the Public Sector Banks. It has been grossly diluted in the recent years – another effect of liberalisation era. Powers of the Board are concentrated in the hands of few in the name of Committees. Many important aspects of control and monitoring are relegated as routine agenda. Here also AIBEA’s repeated submissions have been ignored.
You area quite aware that under the Banking Companies (Acquisition and Transfer of Undertakings) Act 1970 and 1980, The Scheme of Management of Banks includes appointment of Workman Employee Director and Officer Employee Director on the Boards of each public sector Bank. Right from 1970/1980, these appointments were being made. These Employee Directors have been playing the role of a watchdog. Unfortunately, after the NDA Government came to power in May, 2014, not a single appointment for these posts have been made.
The result is that today in all the 20 Public Sector Banks the post of Workman Employee Director and Officer Employee Directors are vacant. For example Workman Employee Director post is vacant in
• Union Bank of India from April, 2014
• Canara Bank from October 2014
• Corporate Bank from December, 2014
• Punjab and Sind Bank from November, 2014
• Bank of India from July 2015
• Oriental Bank of Commerce from January, 2016
• UCO Bank from February, 2016
• Punjab National Bank from March, 2016
• Indian Bank and United Bank of India from May, 2016
• Vijaya Bank from July 2016
• Bank of Maharashtra from June 2016
• Allahabad Bank and Central Bank of India from July 2016
• Syndicate Bank from August 2016
• Andhra Bank from November 2016
• Dena Bank from September 2017
In all these Banks, All India Bank Employees Association is the recognized and verified majority union and as per the Scheme we have submitted the panel of names.
We know not know why, but the fact remains that till today, the appointments have not been cleared.
In SBI, Bank of Baroda and Indian Overseas Bank also, these posts are kept vacant. Similarly, in all these 20 Public Sector Banks, the posts of Officer Employee Director is also vacant and not filled up even though the panel of names have been recommended to the Government by the respective Banks.
Our repeated plea in person and letters have not yielded any result.
Naturally on wonders whether the Government does not want such watchdogs in the Bank Boards even though the appointment is statutory requirement under law.
Another issue which is matter of serious concern to us is the suggestion from ASSOCHAM/Associated Chamber of Commerce and from FICCI/Federation of Indian Chambers of Commerce and Industry to privatise the Banks since according to them public sector banks are not efficient enough to continue.
The long history behind the nationalisation of banks need not be narrated here but suffice it to say that our Public Sector Banks have become pillars of our economy and they are important nation building institutions. They have played a very significant role in our country’s economic development besides being the custodians of people’s money.
During the global financial crisis in 2008 where so many private banks in different countries collapsed like pack of cards and created financial sector tsunami, our Public Sector Banks helped to insulate our economy from that devastating crisis.
Ofcourse, our PSBs have to be further strengthened, expanded and their efficiency further toned up to meet the present-day requirements so they become effective engines to propel further growth and development. PNB-NIMOnia is a serious accident but in no way it is related to ownership issue.
No one can forget the role of private banks in various scams in the past. In fact they were the epicenter of such scams in which common people lost their precious savings. It cannot be out of memory of the people in our country that in the last 4 decades about 40 privately owned Banks have collapsed due to mismanagement by the private owners and yet ASSOCHAM and FICCI are wanting the massive PSBs to be handed over to private hands.
It is also in the record of our Parliament, that due to the large-scale failure of private banks between 1949 and 1960, the then General Secretary of AIBEA Mr Prabhat Kar, who was also a Member of Parliament at that time, raised the issue in the Lok Sabha in 1960 when Shri T.T. Krishnamachari was the then Finance Minister. After debate, the Parliament amended and added a specific clause (Section 45) in the Banking Regulations Act by which RBI was enabled to order moratorium on such private Banks facing liquidation and merge them with other Banks in order to save the money of the Depositors of those private Banks. This is the story and history of private banks.
Further, you have been battling with the demon called NPAs in the Banks and the Government is taking various measures to somehow tack this alarming increase in bad loans in Banks.
Recently, Government has gone to the extent of bringing an Ordinance to amend the Banking Regulations Act to foist insolvency and bankruptcy proceedings against the defaulting corporate borrowers. It is in public knowledge today that all the defaulters referred to the NCLT for initiating insolvency proceedings are well-known private corporate companies.
They could not repay the loans taken by them from the Banks and ASSOCHAM and FICCI want the Banks to be handed over this private sector as though they are more efficient ! It is like pot calling kettle black !
It is also a matter of record in our country that in all major bank frauds so far, there is an irrefutable role of private companies who have been the beneficiaries of such frauds. Vijay Mallay of Kingfisher Airlines, Jatin Mehta of Winsome Diamonds and now Nirav Modi are just few glaring examples. There is no bank fraud where public sector companies are involved.
The private sector in our country have built up their huge superstructure deriving all facilities and benefits from public sector infrastructure.
It would not be unjustifiable when we demand that let the private sector companies who have taken huge loans from the Banks and are defaulting the same first repay the loans efficiently and then talk of the efficiency of public sector banks. It is the corporate delinquency that has burdened the Banks with Himalayan NPAs due to which our PSBs are suffering from and due to which Government is compelled to recapitalize the Banks.
Sir, here we would like to recall our delegation to you a few months back when you instantaneously stated that so far as the present Government was concerned, there is no question of privatising the PSBs and the issue is how to make them more efficient. We are sure that the Government would deal with the claims of ASSOCHAM and FICCI accordingly.
We may hasten to add here that AIBEA is for ensuing a vibrant public sector banking in our country and we shall support all measures taken towards the same.
Before we conclude this important communication to you, we would like to draw your kind attention that in the last few days, the media is replete with reports that Central Vigilance Commission has directed the Banks to transfer enmasse all employees and officers immediately if they have remained in a branch for more than 5 years or 3 years as such. This is nothing new and already such guidelines are in place which are being implemented by the Banks regularly and periodically.
There are always exceptions in few cases like physically handicapped employees, staff having some ailments, staff who are indispensible for want of suitable replacement, etc. If there are instances of any one not rotated they can be done now.
But taking a cutoff date of 31-12-2017 as given by CVC and effecting such transfers in a mass scale would distabilise the functioning of the Bank Branches in a big way especially when employees and officers in the Banks are covered by MoU to turn around the Banks and are engaged in recovery of loans, etc. The Bank managements are also struggling to cope up so that Banks show better performance as on 31-3-2018.
At thus crucial juncture, concentrating on HR issues and transferring the staff from branches will dislocate the working of the branches and would be counterproductive besides involving avoidable costs.
We shall thank you to intervene in the matter and effect suitable advisory toe Banks in this regard.
Sir, we area sure that our submission would receive your special and personal attention and needful action will be taken.