Former RBI governor Raghuram Rajan said in a report to the parliamentary panel that he sent a list of high profile cases related to banking frauds to the Prime Minister’s office, urging for an immediate action, but was ‘not aware of any progress’ on it. He mentioned that the size of frauds in the public sector banking system had been increasing and that the system had been "singularly ineffective" in bringing even a single high profile fraudster to book.
"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," he said in his note.
"The investigative agencies blame the banks for labelling 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," he added.
The statement assumes significance in the light of Nirav Modi and his uncle Mehul Choksi, along with the involvement of certain bank officials, who allegedly cheated PNB of about Rs 14, 000 crore through insurance of fraudulent Letters of Undertaking (LoUs).
"With the benefit of hindsight, we should probably not have agreed to forbearance, though without the tools to clean up, it is not clear what the banks would have done. Forbearance was a bet that growth would revive, and projects would come back on track. That it did not work out does not mean that it was not the right decision at the time it was initiated. Also, we should have initiated the new tools earlier, and pushed for a more rapid enactment of the Bankruptcy Code. If so, we could have started the AQR (asset quality review) earlier,” he further said.