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Former RBI governor YV Reddy says RBI can't escape responsibility in PNB fraud case

This year in February, Punjab National Bank informed that it had detected fraudulent transaction of over Rs 11,000 crore - which later turned out to be worth Rs 14,000 crore - at its Brady House branch in Mumbai.

twitter-logo BusinessToday.In        Last Updated: June 11, 2018  | 14:20 IST
Former RBI governor YV Reddy blames govt for fraud at PNB

Former RBI Governor Y V Reddy has made  a scathing attack on the government for the multi-crore fraud at state-owned Punjab National Bank. He said the government should explain to the taxpayers as to why they failed to protect people's hard-earned money. Reddy said: "A big fraud has come to light in the recent months involving thousands of crores in regard to one particular bank. It is clear that it is a fraud. Who should be worried most about the fraud? It's the owner of the bank who stands to lose the most. The owner (in the PNB case) is the government."

The former RBI chief further said that it is the people who pay for the losses due to such banking scams. "The taxpayers who have entrusted their money to the government-owned banks should be asking the government to explain why, as the custodian of their money, it failed to prevent the fraud," Reddy said while speaking at the Shivaji University at Kolhapur.

This year in February, country's second largest state-run bank informed that it had detected fraudulent transaction of over Rs 11,000 crore - which later turned out to be worth Rs 14,000 crore - at its Brady House branch in Mumbai.

Reddy, who headed the RBI from 2003 to 2008, raised questions over the roles that the nominated directors played. He said that as the majority shareholder of public sector banks, the government should be worried about what the directors it nominated on the their boards were doing (when irregularities were taking place). "The owner should be worried about the system of monitoring and control of its own investment. That should be the focus of the owner," he added.

The former Central bank governor did not even spare the PNB. He said though the RBI's main responsibility is financial system stability and protection of depositors, it cannot escape responsibility for maintaining the trust of public in the banking system. "The (PNB) fraud is of such a magnitude that it affects the credibility of the RBI in ensuring the trust of people in banking. To this extent, it has to review its own regulatory and supervisory practices," Reddy added.

Earlier in March, RBI Governor Urjit Patel in a speech had said that there has been a tendency in the pronouncements post revelation of the fraud that RBI's supervision team should have caught it. "While that can always be said ex post with any fraud, it is simply infeasible for a banking regulator to be in every nook and corner of banking activity to rule out frauds by being there," Patel had said.

The RBI Governor's statement had come after the apex bank faced public anger for not being able to detect country's biggest banking scam in its annual audit. However, Urjit Patel later said that the Reserve Bank's regulatory powers over PSBs banks were limited. He referred to World Bank's Detailed Assessment Report which observed that the RBI has limited legal authority to hold PSB Boards accountable regarding strategic direction, risk profiles, assessment of management, and compensation.

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