Page 298 - A Banker Down the Rabbit Hole

The Concurrent Auditors and the Statutory Auditors failed to discharge
their duty year after year by not scrutinizing the transactions done
through SWIFT as claimed by the bank.

There is tendency among bankers to only monitor and supervise funded
exposures. Processes related to SWIFT communications must also be
made more transparent, and banks must have a grip through the
technology controls by linking Non Fund based limits and SWIFT with
CBS.

PNB has promised to honour its commitments, but has also blamed
other banks for not doing proper due diligence. Some of them had
sanctioned loans against these guarantees (including LOUs) for one year,
much above the RBI cap of 90 days for the diamond industry.

The Reserve Bank of India, later in March, 2018, banned the issue of
Letters of Undertaking (LOUs) for trade finance in the wake of the
Punjab National Bank fraud. But it is likely to have only a limited impact
on majority of the imports barring the bulk importers of gold and
diamonds. Currently, LOUs account for only 4-5% of the total trade
finance.

The scam clearly shows that supervisory process, prudence and vigilance
at this bank failed to detect the fraud. The technology adoption was
long opposed by workers unions and implemented half hearted when
pressed by the Government as also exposed by this fraud. There is an
urgent need to improve on these parameters as well as technology
adoption across all Public Sector Banks.

Insights from the episode

1. Lack of knowledge and skills related to the functional area may
lead to adverse situation for the bank.

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