PNB scam: New evidence shows how RBI failed to detect red flags in banking system

Prime News, National (New Delhi/Mumbai), March 5:- Gokulnath Shetty, a middle-aged bank manager of middling rank, spent his days in the foreign exchange department on the mezzanine floor of Punjab National Bank`s Brady House branch in Mumbai.

It was there, past the loan desk and up a flight of stairs, that the Central Bureau of Investigation (CBI) says Shetty hatched India’s largest-ever bank fraud, which the bank values at nearly $2 billion and says was engineered between 2011 and 2017.

The room where Shetty worked was visited on a quarterly basis by external auditors approved by the central bank, who sifted through documents but failed to spot any problem, according to interviews with two bank employees with first-hand knowledge of the department`s operations.

In the three weeks since details of the alleged fraud was disclosed, Indian authorities and the media have squarely blamed Punjab National Bank and a group of high-flying jewellers including diamond tycoon Nirav Modi.

But Reuters has uncovered new evidence that shows the Reserve Bank of India (RBI) also failed for years to either detect the fraud, respond adequately to red flags in the banking system, or correct a breakdown of normal practices at the nation`s second-largest state-run bank. The RBI is in charge of supervising lenders and meant to act as the bottom-line guarantor that the banking system is sound.

That heightens worries about what other problems might lurk within India`s state-run lenders, which hold some 70 percent of the sector`s assets in the world`s fastest-growing major economy.

The RBI, presented with a list of findings and questions for this story sent to a spokesman, did not respond. Punjab National Bank did not respond to a similar request. Shetty`s lawyer, Vikram Sutaria, said his client “is not guilty”. (MR, Inputs: Agencies).

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