Without taking names but hinting at fraudulent dealings in the Punjab National Bank and questioning the role of auditors and the bank management in the Nirav Modi case, Finance Minister Arun Jaitley Tuesday said it is incumbent upon the state to “chase these people to the last conclusion” to make sure that the country is not cheated.
Speaking for the first time after the PNB-Nirav Modi scandal became public, Jaitley said additional mechanisms have to be put in place by supervisory agencies to ensure that stray cases are nipped in the bud so that they “don’t become a pattern again”.
“There is an important challenge where supervisory agencies must now introspect: What are the additional mechanisms they have to put in place to ensure that stray cases don’t become a pattern again? And stray cases are nipped in the bud and an example be made of people that these… are never repeated,” Jaitley told the 41st annual meeting of Association of Development Financial Institutions in Asia & Pacific.
Highlighting that taxpayers have invested heavily in the banking system, he pointed to Prime Minister Narendra Modi’s statement at the Gyan Sangam where he had said that the government no longer interfered in the commercial decision-making processes of banks.
Taking a swipe at the PNB management without naming it, Jaitley said: “When authority is given to managements, you are expected to utilise that authority effectively and in right manner. Therefore, the question for the management itself is: Were they found lacking? And on the face of it, the answer seems yes, they were. You are found lacking when you are unable to check who amongst them have been delinquent.”
He also questioned the role of auditors. “What were the auditors doing? Both internal and external auditors really have looked the other way or failed to detect… I am sure the profession of chartered accountants itself, and those who control the discipline of the profession, will start introspecting and say what legitimate actions are to be taken,” he said.
He said the NPA situation in banking appeared to be coming on track after the implementation of the Insolvency and Bankruptcy Code but the challenges emerging again could affect the lending capacity of banks for developmental purposes.
“These emerging challenges eventually all strike at one of the big purposes… which is development and growth and the need for developmental banks itself. And the need for increasing the capacity of developmental finance itself,” he said.
Jaitley said the government had already taken the “difficult decision” of recapitalisation of banks, which had moral issues, but it was left with no other option.
“That decision (recapitalisation of banks) itself, as some of my friends in Parliament described, also had moral issues about it because at the end of the day, when NPAs become unacceptably high, you expect the taxpayer really to fund what unprincipled sections of the industry have been able to take out. Therefore, there is a moral hazard in the kind of solution. But there was no other option and, therefore, we had to take that difficult course itself… situation appeared to be coming on track (but) you now again have emerging challenges,” he said.