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PNB fraud not indicative of a systemic problem, feels World Bank official

2 April 2018

"One scam doesn't make a systemic story," stated Junaid Kamal Ahmad, Country Director for the World Bank in India. Speaking at a logistics industry event, he feels that the nearly Rs 13,000-crore PNB scam does not indicate any systemic problems with India's financial sector. The IMF, in contrast, had earlier called for more changes on the part of the government in order to prevent recurrences of such frauds in the future.

"A scam is always important for us to take a look at, whether the regulatory supervision functions or the banking sector is as efficient as it should be. I wouldn't look at one scam as indicative of a system (failure), "Ahmad said.

He added that in India, the government is the policymaker, regulator and also the service delivery agent. "In effect, the judge and jury are the same." He feels that the Government should be only involved in the policymaking, leaving the rest to independent regulators and third-party service agents in a corporatized environment. "If you create separation of powers, you create transparency in service delivery and that is very important," Ahmad suggested.

"Reforms like IBC Code, bank recapitalisation have been taken. But for a lasting impact, these efforts are not enough and should be accompanied by governance reforms particularly for state-run banks," IMF deputy managing director, Tao Zhang had this to say. He feels banking reforms will be ineffective unless governance standards are improved.

The nearly Rs 13,000-crore PNB scam came to light last month. Allegedly perpetrated by jewellers Nirav Modi and his uncle Mehul Choksi, the scam utilized a key loophole on the international trade finance front, in collusion with a few bank officials. The knowledge of the scam has resulted in a tug of war between the Government and the Reserve Bank, with each blaming the other.

The scam has been accompanied by many other frauds in the recent past, including the over Rs 3,600-crore Rotomac scam and others coming to light. In order to safeguard your money from scams, you need expert advice on investments. We, at Dravya Financial Solutions Pvt. Ltd., are a premier financial services firm specialising in financial advisory.

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