It’s ‘fearmongering’: BSE CEO says Indian banking system remains strong after PNB fraud
The amount lost in the PNB fraud case is just three days of interest of the country’s banking sector, said Ashish Chauhan, CEO of the Bombay Stock Exchange.business Updated: Apr 09, 2018 14:07 IST
The talk of India’s banking sector plunging into a financial crisis is nothing but “fearmongering”, as the amount of fraud in the Nirav Modi case is equivalent to just three days of interest of the country’s “solid” banking sector, BSE CEO Ashish Chauhan has said in Washington.
India’s second-largest state-run lender, Punjab National Bank (PNB), was hit by the country’s biggest-ever banking fraud of more than Rs 13,000-crore allegedly perpetrated by billionaire diamantaire Nirav and his associates in connivance with some bank officials.
A special CBI court has issued non-bailable warrants against Nirav and his uncle Mehul Choksi.
Addressing the Massachusetts Institute of Technology (MIT) students at the annual MIT India Conference on Sunday, Chauhan said that India’s banking sector is fairly strong and regulated.
In fact, the amount of fraud being talked about in the PNB case is just three days of interest of the country’s banking sector, he said.
Chauhan, however, said the scandal would not have taken place had appropriate reforms in the banking sector including the RBI been taken after the 1992 Harshad Mehta scam.
“We should have reformed the banking sector in 1992. This (Nirav Modi scam) would not have taken place if we had carried out the reforms then. But we have woken up now, we are doing a good job. One of them is demonetisation, other is the GST and third one is bankruptcy code,” Chauhan told participants of the day-long conference on the theme of Pioneering Innovation.
Chauhan said that the size of the Indian banking system is “ rupees one crore crore”.
“In India we (banks) charge 12% per annum from borrowers. People who lend to the banks are given only 4%. So basically, the banks earn 8% (profit),”
“So, on rupees one crore core, how much interest you get in one year at 12% ? Rs 12 lakh crore. In one month, how much you would get? Rupees one lakh crore. In three days, how much you would get? Rs 10,000 crore. What is the size of the Punjab National Bank’s this particular scam? It’s three days interest of the Indian banking system, which will take care of this (scam),” the BSE head said.
It happens. It is a commercial thing. When they (banks) are taking 8% margins, they are assuming that one out of 12 guys are going to be a defaulter. And still they would be okay. They will pay the principal back.
“Effectively, there is nothing there (in the scam). It’s fearmongering. The banking sector in India is so solid. It’s over regulated, just to ensure that if ever anything happens there is enough money to take care (of),” Chauhan said.
First Published: Apr 09, 2018 14:04 IST