Nirav Modi Scam "One-Off" Case: SBI Chief Rejects Privatisation Calls

New Delhi: The demands for privatization of national banks, triggered by the massive 11,000 crore fraud at the Punjab National Bank involving celebrity jeweller Nirav Modi, has been rebutted by State Bank of India chairman Rajnish Kumar. In an interview to NDTV, Mr Kumar has defended the record of public sector banks and asked if private banks have an unblemished track record. Admitting the scam has hurt the image of the banking system, Mr Kumar added that it was a "one-off incident" and the "hype and the negativity in the media is not warranted."

Poor governance is not unique to government banks alone, said Mr Kumar, chairman of the country's largest bank. "Can anyone say that 100% banks of the private sector have same standards of ethics and governance? I agree that governance needs to improve. But it is not a case where only public sector banks need to improve," he said.  

Besides the PNB scam, two other scams have surfaced over the last months -- the Rotomac case involving Bank of Baroda and the Sambholi Sugars case at (Oriental Bank of Commerce -- triggering calls for reform.

Critics say the PNB scam, the biggest of them, exposes the careless and casual way the operations were conducted at a branch of the Punjab National Bank, which allowed malpractices and fraud by employees to thrive. After the matter became public last month, there have been calls for privatisation from industry bodies like FICCI (Federation of Indian Chambers of Commerce), ASSOCHAM (Associated Chambers of Commerce and Industry of India) and Chief Economic Advisor Arvind Subramanian.

Even Union finance minister Arun Jaitley, while ruling out privatization of PNB, red-flagged the "indifference" of the bank's top management.

Investigators say firms belonging to Nirav Modi and his business partner Mehul Choksi had got Letters of Understanding, a credit instrument, issued from PNB to avail loans from Indian banks abroad, bypassing a whole set of rules. The practice went on for years before the scam was busted.

The scandal has scorched the SBI as well for honouring the Letters of Understanding issued by the Punjab National Bank. The PNB has said it would refund the banks exposed to the fraud, as long as they can prove they did not flout rules either.

"For State Bank of India, I can say that there were no lapses of any nature," Mr Kumar said. The bank's exposure to the scandal was to the tune of "$219 million (approximately Rs 1,400 crore) indirectly through PNB". "I have no doubt that the bonafide transactions and commitments will all be met by the Punjab National Bank," he said.