RBI audit on Punjab National Bank found no lapse in three years, says govt

The Reserve Bank of India’s (RBI’s) annual risk-based supervisory audit could not detect any lapses in government-owned Punjab National Bank (PNB) during the past three years, when the latter was being defrauded of Rs 140 billion through fake letters of undertaking. Minister of State for Finance Shiv Pratap Shukla said so in a written response on Tuesday to a query in the Rajya Sabha. 

The RBI has issued instructions to banks for putting in place and strengthening internal control systems, and on the scope of concurrent audit, Shukla added.

PNB had said earlier that the RBI conducted risk-based supervision of the bank on an annual basis. It has blamed its concurrent auditor for failing to detect the scam that took place at its Brady House branch in Mumbai.

The RBI has blamed the PNB scam on “operational risk arising on account of delinquent behaviour by one or more employees of the bank and failure of internal controls”.

“The philosophy of risk-based supervision is built around evaluation of risks and identification of incipient problems for ensuring that the individual banks initiate corrective action much before the problems could undermine their safety and soundness,” goes a report by the Steering Committee for Review of Supervisory Processes in respect of commercial banks, chaired by former RBI deputy governor K C Chakrabarty.

The Union government has questioned the role of the RBI on various occasions for failing to detect the PNB scam, related to companies belonging to Nirav Modi and Mehul Choksi, on since 2011. The RBI has said it lack adequate supervisory powers to act against erring public sector banks.