Finance Minister Arun Jaitley Says PNB Scam Failure Of Auditors, Management

New Delhi: In his first remarks on the Punjab National Bank scam that erupted last week, Finance Minister Arun Jaitley on Tuesday appeared to blame the PNB management and auditors for the Rs 11,300 crore fraud that the celebrity diamond designer Nirav Modi had been able to pull off. Mr Jaitley, who called for additional mechanisms to nip stray cases in the bud, underlined frauds such as the one staring the government-run in its face, not only had a direct cost on the country and the taxpayer but an indirect cost on borrowings and development as well.

Mr Jaitley said when bank managements get the authority to take decisions, they are expected to utilise it effectively and in the right manner. The question for the bank management was if they were found lacking.

"And on the face of it, the answer seems, yes they were. They were also found lacking in being able to check who amongst them, were the delinquents here," Mr Jaitley told the annual meeting of the Association of Development Financing Institutions in Asia and the Pacific in the national capital on Tuesday.

He also questioned the role of the auditors.

"What are our auditors doing? Both internal and external auditors really have looked the other way or failed to detect... And, of course, there is also an important challenge where the supervisory agencies have now to introspect what are the additional mechanisms they have to put in place to make sure that stray cases don't become a pattern and it is nipped in the bud," Jaitley said.

Punjab National Bank had stumbled upon the fraud last month after an official from Nirav Modi's firm turned up at the bank on 16 January to request buyers' credit to pay overseas suppliers without collateral securities.

The official at PNB's Mumbai branch checked the records when the diamond billionaire's official insisted that they had been getting similar letters of understanding without any collateral securities in the past.

The bank has so far put the size of the bank fraud, being described as one of India's largest, at Rs 11,300 crore but the Congress says there were reports that it would be twice or thrice as much.

The minister said the banking trust depends on trust and the relationship of borrower and the lender but when a section of business demonstrates a clear lack of ethics, it is incumbent for the state to "chase those who cheat the banking system", according to news agency ANI.

The scam has blown up into a major confrontation between the ruling BJP and the Congress-led opposition which has claimed that a fraud of such scale could not have taken place without "top-level protection". Mr Jaitley hadn't spoken yet on the huge fraud so far; the party had fielded Defence Minister Nirmala Sitharaman, Law Minister Ravi Shankar Prasad and Education Minister Prakash Javadekar.