CBI officials, who questioned former RBI deputy governor H R Khan on Friday, wanted to understand from him why the gold scheme (that allowed private players to import gold) was rushed through without taking into the account the impact and potential misuse. Khan was in charge of the central bank’s foreign exchange department for five years till 2016.
The questioning, sources familiar with the developments said, was in connection with the Rs 130-billion scam at Punjab National Bank (PNB) involving jewellers Nirav Modi and Mehul Choksi. The relaxation of the gold import rules in 2014 by the erstwhile United Progressive Alliance (UPA) government, allegedly helped Choksi’s company and others make windfall gains to the tune of Rs 45 billion.
According to the sources, the central agency is of the view that before issuing the circular, proper due diligence procedures were not followed. Typically, such a circular needs to be approved and signed by the RBI’s chief general manager and executive director before issuance.
However, in response to Business Standard’s query, Khan said, “The circular was signed by the chief general manager and it is there on the website of the RBI.”
“The government’s instructions on export/import matter received via fax was acted upon accordingly. The matter was deliberated internally for quite some time and the decision was not taken in haste,” he added.
He said due process was followed. According to him, “In the RBI, urgent advices are not kept pending if one or two officials are on leave or on tour.”
Khan is the senior-most former official of the RBI to be questioned in the PNB matter, considered the biggest fraud in the financial history of the country. The CBI has also interrogated three chief general managers and one general manager of the RBI.
The questioning of Khan is said to have begun with the aim of understanding the policy framework of the time when fraudulent letters of undertaking (LoUs) were issued by PNB to the firms of Modi and Choksi, according to sources.
“We are examining all the aspects related to the LoU scam. The probe, also looking into the 20:80 scheme, suggests that it has benefitted a handful of trading houses in a window of just six months,” said a CBI official.
Khan would be called again if required and a few more officials of the central bank would be also asked to join the probe, he said.
The CBI would also soon write to finance ministry to seek clarifications on the decision, which was cleared by former finance minister P Chidambaram on May 13, 2014.
The CBI probe into the gold scheme was followed by the government’s statement that the agency would take action against people who relaxed gold import rules for star and premier trading houses.
The government also alleged that UPA government’s 20:80 scheme resulted in a windfall of Rs 45 billion to 13 trading houses in six months. The government referred to the Comptroller and Auditor General (CAG) report on gold imports, which showed that about 287 tonnes were imported by 13 trading houses between June and November 2014. The CAG has also taken into account a premium of Rs 0.2 million per kilogram and 80 per cent of imported gold supplied to domestic market earning the premium.
The 20:80 scheme had mandated that for every 100 tonnes of gold imported into the country, at least 20 tonnes were to be exported.
The scheme, which was designed to encourage exports, had witnessed fraud as jewellers were exporting plain jewellery which were melted overseas through shell firms for the purpose of re-import.
In 2014, Chidambaram had modified the gold import scheme and allowed private trading houses to import gold provided they exported 20 per cent of it in the form of gold jewellery.
Earlier, only state-run firms were allowed to import gold. The scheme benefitted trading houses whose imports shot up by 320 per cent during that period.