Rajan gave PMO list of high profile banking fraud cases

Former Reserve Bank of India governor Raghuram Rajan had brought to the notice of Prime Minister's Office (PMO) a list of high profile cases of banking fraud but there was little progress on that front.

“The RBI set up a fraud monitoring cell when I was Governor to coordinate the early reporting of fraud cases to the investigative agencies. I also sent a list of high profile cases to the PMO urging that we coordinate action to bring at least one or two to book. I am not aware of progress on this front. This is a matter that should be addressed with urgency,” Rajan has said in his reply to the Estimates Committee of parliament, which under the chairmanship of Murli Manohar Joshi had sought his views on the NPA crisis.

He said the size of frauds in the public sector banking system has been increasing, though still small relative to the overall volume of NPAs.

Frauds are different from normal NPAs in that the loss is because of a patently illegal action, by either the borrower or the banker. Unfortunately, the system has been singularly ineffective in bringing even a single high profile fraudster to book, he said, adding as a result, fraud is not discouraged.

“The investigative agencies blame the banks for labeling frauds much after the fraud has actually taken place, the bankers are slow because they know that once they call a transaction a fraud, they will be subject to harassment by the investigative agencies, without substantial progress in catching the crooks,” Rajan said.

“When I took office it was clear that bankers had very little power to recover from large
promoters. The Debts Recovery Tribunals (DRTs) were set up under the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993, to help banks and financial institutions recover their dues speedily without being subject to the lengthy procedures of usual civil courts,” he said.