Lok Sabha Question No. 218 (STARRED), answered on 2018-03-09
Subject: Losses Incurred by PSBs
Ministry: FINANCE
Asked by: ASHWINI KUMAR, BHARAT SINGH

## GOVERNMENT  OF INDIA

## LOK SABHA STARRED QUESTION NO. *218

## MINISTRY  OF FINANCE DEPARTMENT  OF FINANCIAL  SERVICES

TO BE ANSWERED  ON THE 9 TH  MARCH  2018/ PHALGUNA  18, 1939 (SAKA)

Losses  Incurred  by PSBs

## *218.   SHRI ASHWINI  KUMAR: SHRI  BHARAT  SINGH:

Will  the Minister  of FINANCE  be pleased to state:

- (a) whether  incidents  of frauds caused by  individuals/shell companies  to the Public Sector Banks (PSB's) including  the Punjab  National  Bank (PNB) are increasing  and if so, the details  thereof;
- (b) the details  of incidents  which  came to light  recently  indicating  the names of the banks,  amount  involved  and the steps taken  by  the Government  to recover  the money;
- (c) the  details   of  losses  incurred   by   PSB's  during   the  last  three   years   due  to  such frauds/scams and the amount  misappropriated, year/bank-wise;
- (d) the measures  taken  by  the Reserve  Bank of India (RBI) and the Government  to prevent  such frauds/scams  in the wake  of development  in PNB;  and
- (e) the  details   of  action taken/initiated by   the  agencies   concerned   in  the  detected cases during  the said period  against  the officials  and other  involved  therein?

## ANSWER

THE FINANCE  MINISTER (SHRI ARUN  JAITLEY)

(a) to (e):  A Statement  is laid  on the Table  of the House.

## STATEMENT FOR LOK SABHA  STARRED QUESTION NO.*218  FOR 9 TH MARCH  2018  REGARDING   'LOSSES  INCURRED  BY  PSBS'  BY  SHRI ASHWINI KUMAR AND SHRI BHARAT SINGH, MEMBERS OF PARLIAMENT.

(a) to (e): As per RBI inputs,  the year/bank-wise details  of frauds reported  by  PSBs in the last three  financial  years,  where  the amount  involved  is Rupees  one lakh  or more,  are at Annex.

Information   regarding   incidence   of  frauds  caused  by   individuals   /  shell   companies   to Public  Sector  Banks  is not centrally  maintained.

As  per  Reserve   Bank of  India  (RBI)  inputs,   Punjab   National   Bank (PNB)  reported fraudulent  issuance  of Letters  of Undertaking / Foreign  Letters  of Credit  for payments of import  bills,  amounting  to Rs. 12,645.97  crore,  to RBI through  its Fraud  Monitoring Reporting  System.

RBI has taken  a number  of measures  to prevent  and control  frauds.  These include  the following:

- (ii) an online  searchable  database of frauds reported  by  banks,  in the form  of Central Fraud Registry,  as a tool  of timely  identification, control  and mitigation  of fraud risk  and for carrying  out  due diligence  during  credit  sanction process;
- (i) a framework  for dealing  with  loan  frauds of Rs. 50 crore  and above,  under  which banks  classify potential fraud accounts as red-flagged accounts   based  on observation/evaluation of early  warning  signals,  and take  timebound  action;
- (iii) issuance  of caution  advices by  RBI, detailing  names of fraudsters  and their modus operandi; and
- (iv) re-verification  of title  deeds in respect  of all credit  exposures  of Rs. 5 crore  and above by banks,  as mandated  by  RBI.

RBI has issued instructions  mandating  banks  to implement,  within  stipulated  deadlines, prescribed   measures   for  strengthening   the  SWIFT   operating   environment in  banks. Further,  it has constituted  an Expert  Committee  under the chairmanship  of Shri  Y. H. Malegam  to look  into, inter alia, factors leading  to increasing  incidence  of frauds in banks and the measures  (including  information  technology  interventions) needed to curb and prevent  it,  and the role  and effectiveness  of various  types  of audits  conducted  in banks  in mitigating  the incidence  of such frauds.

Government  has issued an advisory  to nationalised  banks  to take  immediate  action  as per extant   legal/regulatory framework   to  ensure   that   such/similar   fraudulent   activity   (as reported  by  PNB)is  not prevalent  in the bank.  They  have also been asked to ensure  that robust systems   and  procedures   are  in  place  for  confirming   due  approvals,   necessary applications/documents and  entry   in  the  bank's   system in  respect   of  all  Letters   of Undertakings/Comfort and SWIFT messages, and ensuring  scrutiny  and reconciliation of Nostro  accounts,  and to take  all necessary  steps to safeguard  against  occurrence  of such frauds.   Government   has  further   advised  nationalised   banks   to  collectively prepare   a report  for effective  management  of operational  risks,  including  technology  risk,  so as to safeguard  against  occurrence  of frauds.  Government  has also asked nationalised  banks  to examine   all  accounts   exceeding   Rs.  50  crore,   if  classified   as  Non-Performing Asset (NPA),  from the angle  of possible  fraud.

Central  Bureau  of Investigation  (CBI) has registered  two  cases relating  to the matter  and has  made  several   arrests.   On  the  basis  of  FIRs  registered   by   CBI,  Directorate   of Enforcement  (ED) has filed two  cases under the provisions  of the Prevention  of Money Laundering  Act,  2002 and conducted  searches at various  locations  and seized movable properties  and attached  immovable  properties.  Further,  mutual  funds and bank  accounts have  been  frozen.   Letter   of  Request   to  13  countries   have  been  issued  by   the  court seeking  details  of properties,  bank  accounts  of companies,  etc. ED has moved  the court for obtaining  non-bailable  warrants  against  accused persons.  Further  investigation is  in progress.

Ministry   of  Corporate   Affairs   has  apprised   that   it  has  ordered   investigation into   the affairs of 107 companies  and 7 Limited  Liability Partnerships  (LLPs) belonging  to Nirav Modi and Mehul  Choksi  Groups,  to be carried  out by  the Serious  Fraud  Investigation Office.   The Ministry has also filed a petition/application against  the individuals,  groups and their  entities   belonging  to Nirav  Modi  and Mehul  Choksi  Groups  before National Company  Law Tribunal,  Mumbai  Bench and the tribunal  has passed an injunction  against all   the  respondents   and  other   companies,   LLPs,   trusts   and  individuals   from   removal, transfer  or disposal  of funds,  assets and properties  of the individuals  until  further  orders.