Melwin Joy
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Melwin Joy

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PSBs under scrutiny by Govt following PNB scam

The government has directed public sector banks (PSBs) to consolidate their overseas operations against the backdrop of the Rs 127 billion letters of undertaking (LoUs) fraud in Punjab National Bank. The development means many branches and offices of PSBs in foreign countries will either be shut down or merged with others.

Foreign branches of Indian banks had advanced money to companies belonging to diamond traders Nirav Modi and Mehul Choksi, the prime accused in the scam, allegedly based on fraudulent LoUs from PNB.

“All 216 PSB overseas operations to be examined. Non-viable operations in the overseas markets are to be closed for cost-efficiency and synergy. Operations in the same geography to be consolidated,” Financial Services Secretary Rajeev Kumar tweeted. Giving further details, Kumar said, “PSBs will consolidate 35 overseas operations without affecting international presence in those countries. 69 operations (have been) identified for further examination.” Operations included branches, joint ventures, subsidiaries, remittance centres, and representative offices, he said.

Reacting to the decision, State Bank of India (SBI) Chairman Rajnish Kumar said banks would now have to relook at the business of these operations. He said the idea of rationalisation of PSBs’ overseas operations had been on the government’s agenda for some time now, adding that the largest bank of the country would continue to operate in foreign locations.

A senior public sector banker told Business Standard that the consolidation would be based on business assessment and would include options of swapping assets and liabilities with other Indian banks, scaling down presence in some places from branches to representative offices, and shutting down operations in cases of non-viability.

Bank of Baroda (BOB) is shutting down a branch in Hong Kong and a representative office in Thailand. BOB has also decided to exit South Africa, where it has two branches. A BOB executive said Hong Kong, being the financial hub for Asia, would remain a key business centre and the bank would continue to strengthen business from one branch.

Hong Long and Thailand are part of its operations in South East Asia. “The decision to rationalise our presence is part of the review of our international operations,” the executive said.

The recent announcements are the latest steps by the government as it deals with the fallout of the scam. Earlier, the fraud amount was said to be Rs 114 billion, but this week PNB informed the stock exchanges that an additional amount of Rs 13 billion had been discovered to be part of the fraud.

Owing to the allegations, the finance ministry had directed PSBs to examine non-performing asset (NPA) accounts of more than Rs 500 million for possible fraud and report any cases of willful default to the Central Bureau of Investigation (CBI). The ministry had also set a 15-day deadline for PSBs to put in place an effective system to address rising operational and technological risks.

Source: Business Standard

Melwin Joy
AUTHOR

Melwin Joy

All stories by: Melwin Joy