Finance Minister Arun Jaitley slammed regulators for failing to detect the Rs 11,400-crore fraud at Punjab National Bank for seven long years. The Finance Minister made the point by saying that unlike politicians in India, the regulators in the Indian system were unaccountable.
Speaking on the scam for the second time this week at the ET Global Business Summit, Jaitley said employees conniving with fraudsters was worrisome.
Regulators should have a “third eye” open to detect and check such frauds, Jaitley reiterated.
He questioned why no red flag was raised by the regulators early on.
There were “at least multiple layers of auditing system which chose to either look the other way or do a casual job. You had inadequate supervision,” he said. “Therefore, I think who did what, will eventually find out in the course of investigation.”
Nirav Modi, whose diamond creations have draped Hollywood stars such as Kate Winslet and Dakota Johnson, his uncle Mehul Choksi and firms linked to them are alleged to have acquired fraudulent letters of undertaking (LoUs) from one PNB branch in Mumbai between 2011 and 2017 to obtain loans from Indian banks overseas for which they were ineligible.
Investigative agencies have raided their properties and arrested bank employees and persons linked to his firms.
“Regulators have a very important function. Regulators ultimately decide the rules of the game and regulators have to have a third-eye which is to be perpetually be open,” the finance minister said.
“But unfortunately in the Indian system, we politicians are accountable, the regulators are not.”
Frauds call for tightening regulations where they are lacking, he said.
“The law would be tightened further, if necessary, in order to find out where they (fraudsters) are and what is the extreme action that law permits against such delinquent persons,” Jaitley added.
Jaitley said Indian businesses have to realise that it has to develop a habit of doing ethical business. “Those who deviate from that cause must always remember that the consequences will not only be commercial and civil.”
“I think when I speak in terms of ethical practices I think it is a significant problem in India,” he said, adding Indian businesses should also look inward rather just ask what the governments are doing.
Jaitley then went on to urge the industry movers and shakers to get into the habit of doing ‘ethical’ business. He said banking frauds amounted to being “scars” and tantamount to pushing reforms and ease of doing business to the background.
Unethical behaviour in the lender-borrower relation has to end, Jaitley said while calling for further tightening of laws.
(With inputs from agencies)