PNB incident shows vulnerability of Indian banking system: Assocham

The industry body Assocham on Friday criticised the functioning of public sector banks and questioned its "vulnerable" position in a first reaction by any chamber of commerce to the $1.8 billion fraud that took place in Punjab National Bank.

"Alleged fraudulent transactions worth Rs 11,300 crore from a single branch of the Punjab National Bank with the connivance of the junior official(s) shows how vulnerable the Indian banks, especially those in the public sector have become, with a dangerous potential contagion in the country's financial system," a statement by Assocham said.

"The fact that an officer of the level of a deputy manager, as is being reported in the media, could single handed wreck not only the country's second largest PSU bank but also several other lenders shows how the risk management system is lacking in these entities and how a chain of command system was not there or was not followed," said D S Rawat, Secretary General, ASSOCHAM.

He said with growing size of the Indian economy, the size of the banks and other financial institutions have also become large enough to leave a huge contagion, in case things go wrong.

"The PNB incident should open our eyes to the malaise and a huge gap that exists in building a foolproof risk detection and management. Ironically, even the regulator, which is the RBI, could not detect the problem well in time. After all, the RBI inspection is considered a routine affair in the bank branches," Rawat added.

He said "the scandal" has broken at a worse time for the banks which are battling a humongous problem of the non-performing assets.

"The PNB incident should not be allowed to shake confidence of depositors in the banking system. Such incidents would also make the public more apprehensive about the impending FRDI Bill," he added.

--IANS

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