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PNB Fraud Case: Govt Seeks Ouster Of Top Bankers

In a major crackdown against high-profile bankers following the filing of the first charge sheet by the Central Bureau of Investigation over the $2-billion fraud at Punjab National Bank (PNB), the finance ministry on Monday directed the board of Allahabad Bank to divest all powers of its chief executive and managing director Usha Ananthasubramanian, who was at the helm of affairs at PNB until last year. Financial services secretary Rajeev Kumar said the ministry also asked the PNB board to strip two of its executive directors (KV Brahmaji Rao and Sanjiv Sharan) of their powers.

PNB Fraud

The move compounds problems at Allahabad Bank, which has already been struggling with massive bad debts and asked by the central bank to curb lending until its finances are fixed, and could prompt public-sector bankers in general to go slow on lending, albeit temporarily, said some analysts. However, to allay fears of honest bankers who could avoid taking tough business calls fearing action in future, the financial services secretary said action won’t be initiated on just hearsay.

A show-cause notice by the ministry was served to the bankers about 10 days ago, Kumar said. While the PNB board on Monday accepted the finance ministry directive, a government nominee on the Allahabad Bank board would soon call a meeting to seek the removal of Ananthasubramanian, who completed one year at the Kolkata-headquartered lender only last week. Shares in Allahabad Bank fell 3.2%, while those of PNB gained 0.9% on Monday, when the Sensex ended flat.

pnb fraud

Action by the government came swiftly, within hours of the CBI filing its charge sheet on Monday, detailing the role of Ananthasubramanian in the country’s biggest banking fraud allegedly perpetrated by jewellers Nirav Modi and Mehul Choksi. The charge sheet also named the two current executive directors of PNB and the bank’s general manager (international operations) Nehal Ahad. As the premier investigating agency is to file supplementary charge sheets in the PNB case, more heads could roll.

The financial services secretary said while the government doesn’t intend to interfere in the commercial decisions of PSBs, it seeks highest standards of corporate governance at these lenders.

Ananthasubramanian, who was grilled by the CBI in late February, was the MD and CEO of PNB between August 2015 and May 2017. In a career spanning around 34 years, she also served as the executive director of the country’s second-largest public-sector lender from July 2011 to November 2013. Earlier this year, she became the first woman to head the Indian Banks’ Association in the body’s 71-year history.

The CBI’s current charge sheet primarily deals with the first FIR registered in the case relating to the over Rs 6,000 crore of letters of undertaking fraudulently issued to Modi’s Diamonds R US, Solar Exports and Stellar Diamonds. The CBI is expected to file details of the role of Choksi in a supplementary charge sheet, based on its probe into the role of the Gitanjali group. The CBI had registered three separate FIRs in connection with the PNB fraud. Both Modi and Choksi had left the country before PNB filed the complaint with the CBI in January.

nirav modi


Karthik Srinivasan, group head (financial sector ratings) at Icra, said the latest action, although intended at ensuring good governance standards at PSBs, has potential to slow the lending process a tad unless the government addresses fears of honest bankers. “There could be a temporary lending squeeze, as bankers will take longer time to sanction loans. However, no substantial impact is expected in the medium term,” he added.

PNB revealed in February that firms of the two leading jewellers had defrauded it by raising credit from overseas branches of other Indian banks using illegal guarantees issued by a few tainted PNB staff since 2011-12. The bank has already suspended over 20 officials.

The authorities have arrested at least 20 people and a court has issued non-bailable warrants against Modi and Choksi. The duo have denied the allegations against them.

Commenting on lending by PSBs in general, Udit Kariwala, associate director at India Ratings, said: “No meaningful impact on lending is expected in the banking sector, specifically at PSBs, as credit growth across PSBs has already been muted and credit sanction process has also been subject to greater scrutiny than before.”


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