Panel summons heads of 11 PSBs

After RBI Governor Urjit Patel made it clear that checking bank frauds is the primary responsibility of banks, a parliamentary panel has summoned the heads of 11 Public Sector Banks to understand the efficacy of their internal mechanism to check such probabilities and also grill them on reasons for higher Non-Performing Assets) in PSBs than in private sector banks.

The Parliamentary Standing Committee on Finance, headed by M Veerappa Moily, has called before it the representatives of IDBI Bank, UCO Bank, Central Bank of India, Bank of India, Indian Overseas Bank, Dena Bank, Oriental Bank of Commerce, Bank of Maharashtra, United Bank of India, Corporation Bank and Allahabad Bank.

The panel wants to hear their views on the subject of issues before the banking sector in India, the challenges and the way forward, including NPAs and Stressed Assets in banks and financial institutions.

The last two meetings of the panel has said members taking umbrage to the failure of banks in checking bank frauds, particularly the Rs 13,000-crore PNB scam involving Nirav Modi and Mehul Choksi.

Faced with tough questions on the issue of bank frauds, RBI Governor Urjit Patel, who had appeared before the panel on June 12 had put the blame squarely on the PNB for the Modi-Choksi scam and made it clear that it would be impossible for the RBI to cover each of 1,16,000 commercial bank branches under its supervisory process.

"RBI has no option but to rely on internal control systems of banks," it had said, adding that the RBI supervisors can only do the test checks.

Even regarding questions about the Letters of Undertaking issued for years to companies of Modi-Choksi without collateral by the PNB, the RBI governor said the primary responsibility of understanding the risks rests with the board of directors of the banks concerned.

A member in the panel told DH on the condition of anonymity that after Patel makes clear that the RBI cannot do much to control bank frauds and even in arresting the decline of NPAs, the ball is back in the court of the Public Sector Banks, and the panel, before submitting its report, would like to know whether they have sufficient security mechanisms in their internal systems to check such frauds or even minimise them.

The RBI, in its revised framework for the Resolution of Stressed Assets that came into effect from February this year, has said that lenders should be proactive in monitoring their borrowers and be able to identify financial stress using a combination of leading indicators and renegotiation points in the form of loan covenants rather than wait for a borrower to default.