Financial scams have an uncanny knack of revisiting the country every decade. First, the Harshad Mehta-led securities scam shook the nation in the ’90s. This was followed by the pay-order fraud perpetrated by Ketan Parekh in the first decade of this century. Nirav Modi is now in the eye of a new scam. There were, of course, minor scams in between (in terms of size, though).
If Harshad Mehta used the bankers’ receipt (a kind of token issued by banks for bonds which were passed on later), Parekh had made use of pay orders (sans any money in his account). In the latest instance, letters of undertaking came in handy for Nirav Modi to help his overseas units get buyers’ credit to make payments to overseas suppliers.
Even as the Nirav Modi shenanigans are unfolding rapidly, the question “how did it happen at all?” is now on everybody’s lips.
‘Trading charges’
The blame game is on in full with political parties jumping in to trade charges. Every arm of the regulatory and enforcement agencies is waking up, all of a sudden. In the ensuing noise, it is possible that accountability would get deflected. And, responsibility may never be fixed, conclusively.
Ironically, the scam was a chance discovery. It happened sometime in the middle of last month when Nirav Modi’s diamond firms went to Punjab National Bank seeking buyer’s credit to make payments to overseas suppliers. The new set of officials at PNB, however, had asked them to provide full cash margin for sanctioning the facility. Apparently, Nirav Modi’s firms did not have a sanctioned facility. Yet, these firms were consistently helped by PNB insiders, circumventing the formal operating system in the bank. The scam came to light when a new set of PNB officials began dealing with Nirav Modi firms.
How did Nirav Modi’s firms manage to get credit facility in the first instance when they did not have a sanctioned facility? For a layperson, this is incomprehensible. Is it possible for a middle-level bank official to unilaterally authorise credit facility for a large amount?
It is still unclear as to how long the Nirav Modi firms enjoyed this facility. A middle-level officer could have risked a one-off sanction perhaps based on his understanding of a client. It is a bit too simplistic, however, to assume that middle-level employees would have the audacity to arrogate to themselves the power to continue this offline act for a long time without getting noticed or caught. More often than not, ‘systemic failure’ is the convenience excuse given to explain away a fraud of this magnitude.
Unfortunately, it is the human hand that failed the system. And, the system collapses when human hands join to collude! The responsibility for failure (especially since public money is involved) must be shared across the system. If the bank leadership is unaware of what is going on inside, it speaks poorly for its efficacy!
Nirav Modi’s firms had encashed the letters of undertaking given by PNB to create a liability chain! This means that there are one too many banks drawn into the chain. Can all these happen in a hush-hush manner?
If so, it reflects poorly on the systems in place. It reveals only systematic collusion! When governance is under assault, the solution lies in fixing responsibility. That is easier said than done in a public sector entity.
