India’s finance minister slams oversight lapses in huge bank fraud

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Banks asked to strengthen checks on Swift messaging system

NEW DELHI/MUMBAI: India's Finance Minister decried a "lack of ethics" in business on Tuesday and criticised inadequate oversight by auditors and regulators in the wake of a US$1.8 billion (S$2.4 billion) bank fraud.

Mr Arun Jaitley did not specifically refer to the scandal at state-run Punjab National Bank (PNB) in a speech to bankers, but repeatedly referred to "a stray incident", apparently the massive alleged fraud linked to billionaire jeweller Nirav Modi.

Mr Jaitley is the highest-ranking government official to so far weigh in on the case, in which bank employees are suspected to have steered fraudulent loans to businesses tied to Modi and his uncle Mehul Choksi.

Modi's lawyer has denied the allegations against him.

Mr Jaitley said internal and external auditors needed to examine whether they had "looked the other way or failed to detect" wrongdoing.

The supervisory agencies needed to "introspect (on) what are the additional mechanisms they have to put in place to ensure that stray cases don't become a pattern again".

"It is incumbent on us as a state... to chase these people... to make sure the country is not cheated," he said.

Since PNB disclosed the fraud last week, the bank, auditors and the Reserve Bank of India (RBI) have been under the spotlight over how they could have failed to detect such a scam.

Soon after Mr Jaitley's speech, the RBI, the country's banking regulator, said it had alerted banks about the need to prevent any "potential malicious use of the Swift (interbank messaging platform) infrastructure" at least three times since August 2016.

Lenders had not fully implemented all of the required measures, the central bank said. It did not name the banks.

The RBI added it had mandated lenders on Tuesday to implement measures to strengthen their oversight of the Swift platform.

Modi, jeweller to Hollywood stars such as Kate Winslet, left India with his family in January, prior to the case being filed.

A police complaint filed by the bank says companies linked to the jeweller and his relatives received credit worth close to US$1.8 billion between 2011 and 2017, using false guarantees supplied by two PNB officials.

The fraud case has wiped off US$1.7 billion, more than a quarter of PNB's market value.

Five PNB officials have been arrested, two of them at a Mumbai branch where the alleged fraud originated. - REUTERS