Nirav Modi — Stop Politics and Seek Accountability

Almost one week is over since the Nirav Modi scam made news.

Hundreds of television debates have taken place. Thousands of columns of newsprint have been printed. Experts have opined on the issues and given opinions or pointed fingers. Whistle bolwers have said “I told you so”. Politicians and journalists have pulled out data from the past 10 years and everyone has come “armed” with information that no one else has access to. Finally, outraged television anchors are screaming “nation wants to know” in the hope of getting more eyeballs for their channels.

What is the main point of these debates? The Congress blames the BJP and the BJP blames the Congress for “colluding” with the perpetrator and helping him to steal and flee over Rs 11,000 crores. All that is hoped for by these parties is to try and score some points in the minds of the voters who they hope to woo in the many elections that are coming up in 2018, leading up to the Lok Sabha Elections. The regional parties are also trying to grab some prime time in the hope that they too will notch up a few “voter points”.

Misusing the Modi name and making allegations is not helping resolve this serious matter. It is simply forcing the BJP to react in the strongest possible terms. None of the politicians are thinking of the repercussions this and other scams can have on the long term credibility and health of our economy.

Everyone also knows that this crescendo will die out in the next few days as another “breaking news” surfaces and Nirav Modi and his scam will be relegated to the back pages or forgotten. In all this noise the affected banks, the auditors, the vigilance departments of these banks and the regulator are hopefully continuing with the work that should have done in the first place, which is to monitor, regulate and to govern. The perpetrators of the fraud, Nirav Modi and his band of merry men are happily ensconced in luxury hotels in different parts of the World.

But is anyone looking at the challenges that the banking system is faced with?

It is time for our political parties to set aside their parochial differences on such serious issues and address the following questions together in the interest of the country. They need to seek accountability and stem the rot that seems to exist in some banks.

1. Accountability of the Bank Official — How did one official continue to manage the relationship with multiple passwords and how did he keep extending the Letters of Understanding? In such regulated environments, where were his seniors and what were his juniors doing when they were asked to prepare and upload the documents? How did he manage to bypass every possible checks and balance that surely must be in place? How did he agree to open the LOU’s without sufficient collateral for the first time and how did he manage to keep renewing LOU’s at regular intervals without anyone else noticing? How did he hide these transactions from SWIFT?

2. Accountability of the Bank Management — Punjab National Bank is the second largest PSU Bank of India. It is difficult to understand that no reports were generated for these LOU’s and that the orders did not show up in the core banking system. Was there collusion with other bank employees who covered up the trail so effectively? What was the huge hierarchy of the bank sitting on top doing? Was there no system to manage such large exposures at the level of the Board of Directors? Is there no system of tallying liabilities with collateral?

3. Accountability of Bank Management of other Banks — Several other banks were also involved in the refinancing of these large amounts leading to their own exposure. What were these banks doing with their own internal control systems? Who was responsible for their control systems? Or is it that all banks simply trust the “rubber stamp” of another brother PSU bank, no questions asked?

4. Accountability of the Internal Auditors — Every bank has a large internal audit department which is supposed to conduct periodic audits and report directly the Chairman or at best to the Board of Directors. What was this department doing for 7 long years? Were they also involved or were they simply incompetent in doing their job?

5. Accountability of the External Auditors — Quarterly, half yearly and Annual audits are conducted by the external auditors who sign off stating the accounts represent a “true and fair” picture. What were they doing? They are possibly the most culpable since they are mandated to go into every detail of the books. In another matter, a major accounting firm has been pushed to the limit leading to a censure from the authorities. Should this not be done for the External Auditors for Punjab National Bank?

6. Accountability of the Reserve Bank of India — As the final authority on banking in our country, one of the best managed Central Banks in the World, has also slipped up. What are the reporting requirements from the banks to the Central Bank and what action, if any, is taken in such matters?

Clearly, there has been a systemic failure, not just in one department of one bank but in many departments in many banks. There is chain of people who are complicit and this chain reeds to be unraveled, clear accountability pinpointed and the strongest possible action taken against the culprits. Clear and cogent answers will establish where the weaknesses are and given the brittleness of trust in the banking system, it is critical resolve this as soon as possible.

While there is comfort in numbers for the banks since so many are involved, it is also worrying to think whether Nirav Modi is just the tip of the iceberg and if there are many more similar or other scams hidden in the already “under pressure” balance sheets of the public sector banks. We already have another developing story in Rotomac and Vikram Kothari where the default amounts have reached in excess of Rs 2,900 crores!

Whatever the findings, action has to very swift and must be seen as a severe deterrent to anyone planning to defraud banks in the future. Any delay, procrastination or weakness here will defeat the purpose of the investigation and an already cynical electorate will stop believing the investigative agencies. The general view that the wealthy can get away with anything in our country will simply get reinforced further,

And if after this it is found that some political parties were involved, we should not spare our guilty politicians. Till then, my request to the politicians is to let professionals do their work. Blaming one another simply eases the pressure on the banks and the investigators. If political mileage is needed from this scam, they should push the investigating agencies to complete their task and arrest the culprits before the next elections.

Answers are needed urgently before Nirav Modi too becomes another Mallya. Delays will only result in tying down the investigating agencies in legal battles while the individual will continue to maintain his luxurious lifestyle without a care in the World.

As I write this article, there is a news item in the newspapers stating that Nirav Modi has written to the Punjab National Bank stating that their hurry and panic has led to the bank jeopardising any possibility of a recovery. He has already reduced the amount due from him from Rs 11,000 crores to Rs 5,000 crores. He claims that the bank has destroyed brand Nirav Modi. His lawyer claims that nothing has been proven so far. Nirav Modi has stated that “PNB has closed all options of recovering dues by going public.”

It would add insult to injury if Punjab National Bank receives a legal notice claiming damages of Rs 11,000 crores for the destruction of the Nirav Modi brand! I would be surprised if such a legal notice is not already in the mail!!


The author is the founder Chairman of Guardian Pharmacies. A keen political observer, he is an Angel Investor and Executive Coach. He is the author of 5 best-selling books, Reboot. Reinvent. Rewire: Managing Retirement in the 21st Century; The Corner Office; An Eye for an Eye; The Buck Stops Here — Learnings of a #Startup Entrepreneur and The Buck Stops Here — My Journey from a Manager to an Entrepreneur.

Twitter: @gargashutosh

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