A large chunk of mass Indian
including media persons are making storm on their cup of tea regarding Punjab
National Bank mega fraud for Rs 11880
crores where Mr Nirav Modi the Numero Uno suspect who alleged siphoning this
fund from Bank out of country. Common men are as usual divided into two and
slinging mud to either of political parties
BJP or INC. Some are even speaking in terms of NPA the word is now known
to almost every Indian without knowing the meaning of the word in absolute
term. I will try to explain the meaning of NPA for common people as well as I
will explain how this fraud slowly took shape into a mammoth scam in history of
Indian economy. Let us discuss first
What is NPA is absolute Banking
term?
When an advance becomes overdue
either by installment due or and interest thereon or both more than 29 days it
is called “Temporarily Irregular Account” This not defined as NPA
Where an advance (Rs25.00 Lakhs
and above) become overdue either by installment due or and interest thereon or
both more than 59 days it is termed as SMA (special mention account)
When an advance becomes overdue
either by installment due or and interest thereon or both more than 89 days it
is called NPA account
This is discussed in broader
sense only for consumption of general public, without going deep inside where
many more modalities are there.
Now an advance may be different
types, Viz, Working Capital for running expenses for a unit, term
loan for purchase of machineries and equipment for business and third one
in bank guarantee. Since this mega fraud in PNB was against Bank
Guarantee, we with discuss on this only.
Bank Guarantee is of two types
viz, Performance Guarantee and Deferred Payment Guarantee. Now
Deferred Payment Guarantee is given by Bank against large amount
Equipment finance to the manufacturer instead of direct Term Loan. Performance
Guarantee is issued against import license of parties where good are delivered
against the Bank guarantee. This is issued as a letter of undertaking (LOU)
given by Bank on behalf of importer to the exporter at other foreign land. Bank
Guarantee was extended time to time to the party by Bank authorities wherein as
per banking rule party had to deposit 100% cash collateral securities against
issuance of each Bank Guarantee or extension thereof. After the transaction is
over, this has to be invariably loaded in the Core Banking System by a maker
and will be approved by a checker. Thus the amount of Guarantee will
reflect in the System with absolute transparency amount will be added to Bank’s
total exposure under the head of Contingent Liability.
In this very case, one fraudulent
Deputy Manager in a particular branch has taken chance of the loophole of the
system. He issued the Performance Guarantee as Letter of Undertaking manually, and
handed over the document to the party without obtaining any cash collateral
against this. He has sent the information through SWIFT mode (for international
remittances of fund) by using his own password. This he continued from 2008 to
till his retirement from the service, i.e. about a year back.
So, this is clearly a fault of
that very branch and PNB authorities. He was not transferred from this branch
for many years and that is unusual. His desk was not changed also due to
reasons best known to his authorities.
So, it is clear case of laxity in
PNB and this is their in house problem. The account has nowhere the account became NPA. Neither
authorities of RBI have any connection with this fraud nor is involvement of
any political party established. Common men are requested to refrain making any
loose comments against RBI or involvement of any political party.
