Preventions from scams like the Nirav Modi scam.

 

Introduction-

 

• Nirav Modi Scam that took place in the second largest public sector bank of India,the Punjab National Bank.The two employees of PNB tied up with Nirav Modi and through SWIFT(Society for Worldwide Interbank Financial Telecommunication) issued the LOUs(Letter of Undertaking) to the banks which are situated overseas. Even these LOUs were not recorded in the ledgers.

 

• This scam began to take place in 2011.

 

• Various firms affiliated with Nirav Modi granted the credit of buyers using forged LOUs. The credits were transferred from the branches of Indian Banks- SBI, Axis bank, Union Bank of India,that are situated in Hongkong.

 

• When all these credits were calculated, the scam of approximately Rs.14,000 crores was revealed.

 

• After disclosure of the Nirav Modi scam, various similar scams are also revealing. Rotomac, Kanishk and Totem infrastructure Ltd are under inspections.

 

Inadequacies in the set of laws that led to these scams-

 

• Fake LOUs were not found until because in many banks SWIFT is not coordinated with core banking yet.

 

• According to the norms and regulations the officers of a bank are advised to transfer every three years. But the rule is not followed.

 

• A check on the quality of internal audits must be ensured. This Nirav Modi scam also revealed that keeping audits is of utmost importance.

 

• The scam was not recognised by the Reserve Bank of India (RBI) too.According to Urjit Patel,the present RBI governor RBI requires more regulating authorities. These regulating authorities are meant to keep a check on these sorts of scams. The governor also says the reformation is needed in the Banking Regulation Act.

 

• The controlling authorities are both the government and the RBI.The dual control creates a sense of confusion which leads to such scams.

 

 

• Union government’s autonomous body- Banks Board Bureau (BBB) which was established in 2016 for two years to renovate the regime of Public sector Banks (PSBs). BBB can be revamped to reform the proficiency of PSBs.

 

• The government has a special right to take control over banks. Currently the banks are not being supervised and monitored by the government. Government should take this privilege.

 

Conclusion-

 

The frauds are the results of irresponsibility of Government, RBI and Banks. They should not blame each other rather try to find out the conclusions. Multiple layers of checking should be conducted to avoid scams like the Nirav Modi Scam.