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(image courtesy: https://www.narendramodi.in/examwarriors)
Facts become the martyrs when politicians play blame games. Obscure facts are getting buried under the impact of fierce mud-slinging between Modi Govt-BJP camp and the Opposition especially the Congress Party over PNB scam.
Fact is that the scam is unintended bhagidari of BJP and Congress regimes. The ecosystem for scam was jointly conceived by both without anyone realizing that it would be misused by Nirav Bhai, Mehul Bhai and their ilk.
The second fact is that bond between diamond business and Prime Minister Narendra Modi is too entrenched to be brushed aside as dirty politics. Third, accountability has to be fixed right from PNB to the PMO. They either overlooked or took in stride banking frauds that were even pinpointed by a RBI Deputy Governor at a conference in 2016. More of this later.  
Ideally, the Supreme Court should step in and constitute a special investigation team (SIT). It ought to oversee full-fledged probe into a web of willful loan defaults, money laundering & cheating cases within the diamonds sector. 
Laxity on the part of regulators, banks and the Government enabled Nirav Modi, Mehul Choksi, Jatin Mehta and their ilk to commit alleged frauds. They were allowed to flee the country. There is not even an iota of evidence that shows Government is probing where and why laxity happened on its part.
No doubt, auditors, PNB management and RBI have to be held accountable. But why should accountability not be fixed in the Union Government? To understand the need to avoid recurrence of so-called systemic failures, one has to understand why they occur. 
It all started with the clamour to bail out diamond industry from the impact of 2008 global meltdown. Gujarat Chief Minister Narendra Modi emerged as undisputed patron for the diamond industry. This is because bulk of the country’s cutting and polishing of diamonds is located in Gujarat. 
An obscure fact is that on 7th January 2009, Mr. Modi submitted a memorandum to Prime Minister Dr. Manmohan Singh, seeking revival-cum-relief package for diamonds industry including its workers.
There is nothing wrong in a Chief Minister seeking the Centre’s intervention to prevent closure of businesses and resulting job losses. What is wrong is deflecting attention from one’s own act of indiscretion and putting the entire blame on rival politicians. 
In his memorandum, Mr. Modi made a lot of demands, the chief being a liberal credit policy for diamond industry. He even sought suspension of action on non performing assets (NPAs) for one year.
Did Mr Modi, as Prime Minister, overlooked his earlier soft stance on NPAs when he dubbed NPAs as the biggest scam of UPA era in December 2017? 
The other demand made by Mr. Modi in 2009 included ensuring “perennial flow of dollar finance”, doubling of “interest subversion” (subvention or interest subsidy) to four percent and waiver of penal interest on export credit. He also sought deferred payment facility for service tax for two years. 
Modi magic started showing results the way diamonds glitter. On 13th February 2009, Reserve Bank of India (RBI) issued a circular, delegating its powers to grant permission for opening diamond dollar accounts (DDAs) to certain banks.
RBI also constituted a task force (TF) on diamond sector. In its report dated 26 February 2009 prepared at Ahmedabad, TF accepted Mr. Modi’s demand for doubling interest rate subvention to 4%. TF also recommended “expeditious restructuring of the existing borrowal accounts as per RBI guidelines”. It also recommended that banks would examine industry’s demand for sanction of credit against stocks of polished diamonds.
Another recommendation called upon the banks to quickly process applications for loans sought by new diamond units.
TF stated: “The progress in the implementation of the above recommendations will be monitored jointly by the Reserve Bank of India, the Government of Gujarat and the banks through the forum of State Level Bankers’ Committee”.
On 29th October 2009, RBI relaxed the eligibility norms for diamond companies for opening of DDAs. The credit liberalization for diamond industry continued with the passage of time.
Diamond sector also received a leg-up under Foreign Trade policy for period 27th August 2009 to 31st March 2014.
In all fairness to Mr Modi, it must be noted that seeds for misuse of letter of undertaking (LOUs) by Nirav Modi and Gitanjali groups were sown way back in November 2004 shortly after UPA came to power.
In a circular dated 1 November 2004, RBI dispensed with the requirement of companies & dealing banks seeking its prior approval for issue of LOUs/letters of comfort (LOCs) for import credit. 
It is thus clear banking and export-import rules for diamond business were liberalized in good faith by Congress-led UPA Government at the prompting of BJP Government in Gujarat. 
When authorities put in place a liberal business environment, it is their duty to prevent abuse of the relaxed rules. It is also the duty of political executive to act against timely and specific complaints against misuse of rules and misconduct by any businessmen.
This is the crux of the PNB scam and all wrongdoings in diamond sector, which is relatively more prone to cheating, money laundering and tax evasion as compared to other sectors.  
Banking secrecy prevents analysts from getting an insight into laxity by internal auditors and statutory auditors at PNB and by RBI’s supervisory audit. That laxity is evident from the fact that scam happened even after existence of seven tiers of audit in the banking system. 
In its first formal reaction, RBI described PNB fraud as “a case of operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls”.
The fraud was perpetuated by a few managers at a PNB branch in Mumbai by bypassing the Bank’s Core Banking System (CBS). They directly fed trade credit LOUs into Society for Worldwide Interbank Financial Telecommunication (SWIFT), the Belgium-based global provider of secure financial messaging services.
In its second formal reaction, RBI disclosed: “The risks arising from the potential malicious use of the SWIFT infrastructure, created by banks for their genuine business needs, has always been a component of their operational risk profile. RBI had, therefore, confidentially cautioned and alerted banks of such possible misuse, at least on three occasions since August 2016, advising them to implement the safeguards detailed in the RBI’s communications, for pre-empting such occurrences. Banks have, however, been at varying levels in implementation of such measures”.
In fact, RBI Deputy Governor,S. S. Mundra had shared RBI’s concern on this count at a public platform and yet Finance Ministry didn’t step in. 
At a conference organized during September 2016, Mr Mundra stated: “We have also come across instances of fraudulent messages confirming documentary credits being transmitted using SWIFT infrastructure. Although, the latter incidents were mainly a result of failure of internal controls and non-adherence to ‘four eyes principles’, it is also on account of reliance on disparate systems whereby SWIFT transactions could be done without originating a corresponding transaction in the CBS.” 
Had the media probed & orchestrated this shocking disclosure, PNB scam would have been nipped in the bud. In any case buck stops at the Modi Government. 
The authorities, right from local police station to Prime Minister’s office, were saddled with complaints, mainly against Gitanjali group.
PMO itself received a few complaints. Of these, two comprehensive complaints against Gitanjali group were made public by the Congress Party. PMO should make public list of all complaints against loan defaulters and other corporate cheats to defang the Opposition and to protect PM’s image. 
Neither Mr. Modi’s silence nor BJP’s counter-offensive against Congress for its past misdeeds would bring clarity to the scam.  
The first complaint dated 7th May 2015 against Gitanjali was addressed to Ministry of Corporate Affairs. It was also sent to PMO, Serious Frauds Investigation Office (SFIO) and Enforcement Directorate.
The complaint alleged that Gitanjali had cheated PNB and other banks. It also alerted the Government at the risk of Mr. Choksi fleeing India after committing loan defaults running into several thousand crore of rupees.
There is nothing in the public domain to show that PMO took serious view of the complaint. Did it forward the complaint to Finance Ministry/RBI and SFIO? 
Ironically, Mr. Choksi was among the handpicked, selected guests invited at PM’s official residence where Mr. Modi launched three gold-related schemes on 5th November 2015. 
Mr. Choksi had the rare honour and privilege of being addressed by PM as Mehul bhai in his speech. 
Only an independent probe can show whether the video of this speech was replayed by Gitanjali staff before relevant stakeholders to overawe them about Mehul bhai’s clout.   
Did Mr. Modi or Finance Minister Arun Jaitley, who was present during the launch event, cleared the invitation to Mr. Choksi? Do they now realize that Government erred in inviting Mr. Choksi for the event?
It is legitimate on the part of the Opposition and citizens to ask the Government about the patronage given to Mr. Choksi and his ilk.
Many people view diamond merchants as being close to PM. It is here pertinent to note that diamond merchant Laljibhai Patel had bought Mr. Modi’s monogrammed suit at auction in February 2015.
The auction followed public storm over Mr. Modi wearing this Rs 10 lakh suit, gifted by a businessman. PM wore the suit at his meeting with visiting US President Obama a month earlier. The suit dented Mr. Modi’s image as Messiah of the poor.
Coming back to Gitanjali, the second complaint, dated 26th July 2016, is equally serious and specific. It says: “This company has taken huge loans to the tune of almost Rs 9872.0 crores with meager assets of just Rs 25-30 Crores and definitely going to become NPA soon. Someone need to investigate the credit report of this group with these banks”.
It added: “Having failed to get the attention of any authority, we have finally coming too PMO as we want to save the country from huge losses of apx Rs 10,000 Crores looted by such white collar thugs”.
The complaint contains allegations against Times of India group in particular and media in general for their reluctance to write stories on Gitanjali linked scam. These allegations should also come under scrutiny of independent probe agency. 
There is sound and fury over Central Bureau of  Investigation (CBI) probing PNB scam. This can’t cloud the fact CBI lacks the courage to quiz PMO staff about how it handled and monitored the complaints against Mehul Bhai. Ideally, Mr. Modi should himself make a statement in Parliament about loan defaulting diamond tycoons who fled abroad.   
Instead of disclosing what action it took on the complaint, the Government fielded senior cabinet ministers to launch counter-attack on Congress for its alleged complicity in scam.
It is nobody’s case that guilty ones in UPA Government should not be punished. However, repeated allegations against the Congress for all ills plaguing the country can’t whitewash PNB scam and other alleged NDA scams. The possibility of skeletons tumbling out of NDA cupboard would emerge if it loses power in 2019 Lok Sabha polls.
The 2nd complaint drew parallel between Gitanjali promoter and Winsome Diamonds group whose promoter allegedly absconded after cheating the financial system to the tune of Rs 6500 crore. 
Modi Government and/or Supreme Court should now choose between banking secrecy for borrowers and safeguarding credibility of the financial system. Banking secrecy laws, coupled with Official Secrets Act, have sustained crony capitalism, dubious lending, siphoning off borrowed money and NPAs. 
Lack of transparency is the mother of all scams. The story is same in the instant case. The total picture about banking frauds embedded in NPAs would become clear after all banks act RBI’s post-scam directives. 
RBI has constituted an Expert Committee (EC) to look into the reasons for high divergence observed in asset classification and provisioning by banks vis-à-vis the RBI’s supervisory assessment. EC would recommend steps needed to prevent assets classification mess and frauds.
But who would set up a committee to fix responsibility for laxity in governance of financial sector and in handling of grave corporate complaints by Government including PMO? 
Published by taxindiaonline.com on 4th March 2018
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