RBI blames PNB board for fraud
- In written reply to parliamentary standing committee of finance, RBI blames PNB board of directors for nirav modi fraud.
- RBI has pointed out that Nirav Modi loan allocation is the failure of “three lines of defence” of banking system.
- Three lines of defence
- First the officer sanctioning the loan
- Second is at the managerial level
- Third is the internal audit
- RBI said that Public sector bank are corporation and not a banking company which do not directly come under the ambit of banking regulation act 1949.
- The RBI reported that all financial institutions were warned about dealing with Letters of Undertaking (LoUs) procedure but it was not followed by PNB board.
- The RBI also accused PNB for submitting a factually incorrect compliance report with regards to LOUs.
- The RBI has seek for more power to monitor Public sector bank which include:
- Power for the removal and appointment of the CMD
- For Grant of licence and impose conditions.
- Approve appointment and re appointment or termination of appointment of chairman, managing director and Chief Executive officer.
- To supersede the board of director.
- For making application for winding up of bank.
- Sanction scheme of voluntary amalgamation.