PNB rip-off: There’s greater than meets the attention in Usha Ananthasubramanian’s final minute dismissal; however why solely her?

There isn’t a recognized precedent to any central authorities selecting to dismiss a state-run financial institution’s managing director and chief govt on her remaining day in workplace. So, that honour has been bestowed upon Allahabad Financial institution’s sacked chief, Usha Ananthasubramanian.

Not for what she did at that financial institution, however in connection along with her earlier stint on the scam-hit Punjab Nationwide Financial institution (PNB), the place she allegedly didn’t train her powers as MD & CEO, paving the way in which for the uncle-nephew duo of Mehul Choksi and Nirav Modi to allegedly defraud the lender of roughly Rs 14,000 crore utilizing cast commerce credit score devices. Ananthasubramanian was PNB’s chief between August, 2015 and Might, 2017.

The federal government has authorised the Central Bureau of Investigation (CBI) to prosecute Ananthasubramanian within the case.  This implies Ananthasubramanian will now have to arrange for an extended authorized battle.

Usha Ananthasubramanian, former MD, PNB. Pic courtesy: Allahabad Financial institution web site

So, what’s the message the federal government needs to ship to Ananthasubramanian’s colleagues within the banking business by sacking her on retirement day, and denying her of a sleek exit? In case you attempt to translate the motion into phrases, it will learn one thing like this — when you mess up, you may’t get away on straightforward phrases, even when it’s the final day of your three-decade lengthy service. Nicely, that’s a stern message to go round and no senior banker in any state-run financial institution will take his place with no consideration and act as a feudal lord. That ought to herald some sense of sanity, accountability and duty to the put up, not saying all of them have been irresponsible, however actually a great quantity have been.

There isn’t a denying that for many years, state-run banks operated like feudal establishments solely with a couple of exceptions. Of their method and in the way in which they operated, these establishments have been far totally different from non-public and overseas banks.

The sense of consolation given by sovereign backing, short-tenures of prime degree employees, micromanagement by the incumbent political management — all turned these corporations into authorities automobiles that exist primarily to hold out the agenda of political populism. One might argue that, in hindsight, the nationalisation of those banks proved to be a mistake contemplating the erosion in operational effectivity and unhealthy mortgage administration. These establishments have been endlessly liable to the ‘begging bowl syndrome’, the signs of which manifested yearly when these entities lined up earlier than North Block for survival capital.

However, the query right here is why solely Ananthasubramanian?

The CBI chargesheet says Usha Ananthasubramanian and another senior financial institution officers have been within the know of the fraud, ignored circulars and saved “deceptive” the Reserve Financial institution of India (RBI) in regards to the true state of affairs involving PNB Dubai and the Indian Abroad Financial institution, Chandigarh .

“But they didn’t take any corrective motion and remained silent spectators. This facilitated continuance of the fraud leading to wrongful loss to the PNB,” the CBI mentioned within the chargesheet, in line with the PTI report.

There are a couple of questions which are price right here:

First, it may very well be true that the continuance of the fraud was facilitated by Ananthasubramanian. However what about those that headed the financial institution earlier than her whereas the fraud was on? Ananthasubramanian was PNB’s CEO between August 2015 and Might 2017 whereas the rip-off started in 2011 as admitted by the financial institution administration on the first press convention the place it introduced the rip-off. Between 2011 and 2015 there have been two different CEOs at PNB — Okay R Kamath and Gauri Shankar. Had been they requested in regards to the letter of understanding (LoU) transactions by the RBI or CBI? If the cost is of ignoring banking guidelines, i.e. prudential norms governing the LoU transactions, shouldn’t it apply to all?

Second, the cost in opposition to Ananthasubramanian and different officers is that they ignored RBI circulars and responded to the central financial institution’s queries in a deceptive method since October, 2016. Again in 2011, when Nirav Modi first colluded with financial institution officers to start the chain of fraudulent transactions utilizing the now-infamous LoUs until 2016, was the regulator then blissfully unaware about of the issues in LoU-linked transactions? Doesn’t it imply that the federal government, the RBI and varied managements have, infrequently, failed miserably to information the financial institution inside the suitable risk-management framework?

Third, what about all the opposite biggies within the banking system who dedicated the identical mistake? There have been many different banks who could not have linked their core-banking software program platform (CBS) to the SWIFT software program — a flaw that Nirav Modi used to his benefit within the rip-off. Modi selected PNB to commit the fraud however doesn’t the cost of ignoring RBI norms apply to most different public sector banks (PSBs) as effectively?

Fourth, what was the motive of Ananthasubramanian, and the others, talked about within the CBI chargesheet for facilitating the fraud? Did they obtain any kickbacks?

The issue is that the PNB case is seen in isolation even now by investigators. That is clearly a systemic situation the place threat administration techniques have failed relating to compliance. Merely passing the blame to the SWIFT software program, its disconnect with the CBS system and Nirav Modi’s criminality gained’t assist. This can be a cardinal mistake.

PNB must be the set off for an overhaul of the style by which threat administration techniques operate throughout the banking system. Ananthasubramanian’s dismissal will definitely nudge different bankers to drag up their socks. However investigators, the federal government and the regulator should be sure that they do not have a look at the PNB rip-off in isolation.

(Part of this piece was printed earlier on Firstpost) 

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