The recent multi-crore fraud at Punjab National Bank found its reference during the Canada-India Mumbai Business Forum on Tuesday, when a delegate raised the issue of corporate governance being given importance in Canada and how it appeared that the same was not being followed in India, thus giving rise to fraudulent practices.
Siddhartha Sengupta, deputy managing director (international banking), State Bank of India (SBI), a panelist discussing ‘Positioning Canadian Strengths in the context of India’s policy agenda’, termed the incident as failure of key controls, while responding to the delegate.
“Ethics and risk mean different things for different people. What it means to me as the chairman of the board may not mean the same to a front line officer,” he said.
He said that at SBI, ‘a huge amount’ of work has been done in the risk management space. “We need to break risk down to an actionable item that people understand. We talk about processes and e-control, but there was a failure of key controls in the recent incident,” Mr. Sengupta said, without naming PNB. Last week, the second largest lender of the country informed the exchanges about ₹11,500 crore worth of unauthorised transactions after fraudulent letters of undertaking were issued from a branch in Mumbai to secure overseas credit.
Mr. Sengupta added that often, the four-eye, six-eye or the sixteen-eye principle — a requirement that a set of individuals review and approve a course of action. “But if those sixteen eyes get together and decide to bring down something, it will come down despite whatever risk management [practices] you have,” he added.
“But just because an incident like this has happened, it does not mean that compliance of key controls have lost its importance. It only means that we need to think in terms of additional layers of security and control.”
Kashmira Mewawala, head, business development and chief ethics counselor, Tata Capital Financial Services Ltd., said she had seen a rise in adherence to corporate governance and in actually ensuring that people are operating in an ethical way.
‘Rise in adherence’
“I am seeing a substantial increase on this with Indian companies right now. SBI recently appointed a group ethics officer. So, I am seeing that people have begun to realise that this is extremely important and that it is the basis of everything we do.”
Referring to the need for institutions that train people in corporate governance, Ms. Mewawala said that India did have a lot of such institutions who do it for independent directors.
