7 years continuously as the Manager of the same Branch of a Bank: It says everything and many more Nirav Modies will surface if this practice is not stopped

While the Punjab National Bank (PNB) and other affected lenders are still blaming each other over the RS 11,300 crore scam, the groundbreaking scam has helped in identifying the major flaws in the Indian Banking System.

According to experts, the Indian Banking System has very weak risk management practices which are highly unacceptable. Even though major international banks had tightened their supervision and corporate governance after the credit crisis in 2008, most Indian banks made very little progress in doing so.

Now many questions are raised against how the PNB officials at Mumbai’s Brady House branch were able to issue letters of undertaking(LOU) against import receipts from Nirav Modi‘s firms without management supervision for seven long years. Overseas branches of other lenders like Allahabad Bank and Axis Bank issued buyers’ credit against these letters of undertaking.This money has been credited to the Nostro account of PNB’s branch.

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Nostro account is the account of a bank in a foreign currency in another bank. The PNB which had honored this claim until January 5th had a sudden change of mind and now refer to these transactions as fraudulent. However, various bank experts question this by asking how the PNB honored these claims all these years if the LOUs were fake.They also said that the management supervision of the bank has been a big failure as the malpractices remained confined to a handful people.

Nowadays the Nostro accounts in banks are undergoing various regulations. According to these regulations, all the branches that are authorized to deal in foreign exchange would know the details of such accounts.

Nostro accounts in banks nowadays are being reconciled real time. And all branches authorized to deal in foreign exchange would know the details of such accounts. The fact that frauds with a similar pattern that happens repetitively are a matter to worry. Recently many frauds have taken place which was based on letters of credit and supporting fake transactions of purchases. Experts demand that the banks must see fraud protection as an essential duty and therefore they must strengthen their internal control.
It must be noted that Central Vigilance Commission rules state that people working in sensitive positions must be mandatorily identified by organizations and their chief vigilance officers. They must also be transferred every two/three years. While international banks ask their officers to go on vacation during peer reviews, Indian banks haven’t adopted such practices yet.
However, the PNB branch manager of the Brady House Branch had been in the same position for almost seven years until his retirement in January. He also handled one account for all these years which exposes the flaws in risk management and oversight functions at Indian lenders.

The PNB branch manager in question was in the same position for about seven years until he retired in January and handled one account for all these years, underscoring the lacunae in risk management and oversight functions at Indian lenders.