Centre answerable for taxpayer losses’
Former RBI Governor Y.V. Reddy has criticised the government for the multi-crore fraud at Punjab National Bank (PNB) and said as the owner of public sector lenders, it was answerable to taxpayer losses rising out of such financial scams.
In February, PNB detected a more than ₹13,000- crore fraud allegedly involving diamantaire Nirav Modi and his uncle Mehul Choksi, a billionaire jeweller, at one of its branches in Mumbai.
“A big fraud has come to light in the recent months involving thousands of crores in regard to one particular bank. It is clear that it is a fraud. Who should be worried most about the fraud?
“It’s the owner of the bank who stands to lose the most. The owner [in the PNB case] is the government,” Dr. Reddy said in a speech at the Shivaji University in Kolhapur.
Dr. Reddy, who headed the central bank from 2003 to 2008, said it is the taxpayers who pay for losses due to such banking frauds.
“The taxpayers, who have entrusted their money to the government-owned banks, should be asking the government to explain why, as the custodian of their money, it failed to prevent the fraud,” Dr. Reddy said.
Bank deposits with the private sector, having adequate capital, continues to be as safe.
The future of the public sector banking, which accounts for a major part of the banking system, was uncertain, he said.
Dr. Reddy has raised concerns over the “delay and uncertainty” in capital infusion by the government in public sector banks.
“The uncertainty and delay in government injecting capital [in state-run banks] as required by the RBI is a source of discomfort, no doubt,” he said.
In the current financial year, the Centre has budgeted ₹65,000 crore of capital infusion in the state-run banks. It is a part of the government’s massive recapitalisation plan, announced in October 2017, of ₹2.11 lakh crore over 2017-18 and 2018-19.
In FY18, the state-run banks received ₹90,000 crore of capital from the government.
Safety of deposits
Dr. Reddy said it affected depositors if a bank did not have enough money to pay to them, that is, when the capital was not adequate.
He said from all accounts, the private sector banks have adequate capital to meet the requirements of the depositors’ safety.
“But, there is inadequate capital with public sector banks to meet the obligations of the banks to the depositors,” he said.